For most of us, the prospect of long-term care is one of those looming specters in the distance that we try our best to ever avoid contemplating. This can be especially true for the affluent who simply figure they will deal with the associated costs when and if the need arises. Yet even for wealthy families, an unexpected healthcare event requiring long-term care can quickly wipe out a sizable portion of assets that might otherwise be earmarked as a legacy for your heirs.
According to the U.S. Department of Health and Human Services, approximately 70% of Americans who are currently age 65 or older will need some type of long-term care (e.g., nursing home stays, home health care and/or time in an assisted-living facility)—costs that are not covered by Medicare.1
Rather than paying out-of-pocket, you may want to consider mitigating some of the long-term care risk for you and/or your spouse by purchasing an insurance policy that also offers long-term care benefits. Unlike traditional long-term care insurance where there’s a very real possibility that you could pay years of premiums without ever needing (and therefore losing) any benefits, many insurance policies offer optional long-term care riders to policyholders who are generally in good health.
There are two different types of policy riders commonly available: permanent life insurance with a long-term care benefits rider and hybrid life insurance with a long-term care benefits rider. With these types of policies, if you need long-term care coverage, it’s paid out of the policy’s death benefit according to a pre-determined payment schedule. Any unused portion of the policy death benefit is then transferred tax-efficiently to your heirs upon your death.
While the two options are fairly similar, permanent life with a long-term care rider may be preferable for those whose principal focus is on maximizing the death benefit paid to their heirs, with long-term care as a secondary consideration. Individuals who want greater flexibility in purchasing additional coverage and/or paying premiums, however, may want to consider a hybrid policy with long-term care benefits.
Integrating long-term care into your wealth plan
An unplanned long-term care event can throw a wrench into otherwise carefully-crafted estate and wealth transfer plans—not only necessitating the liquidation of illiquid assets such as a family business, but often requiring the sale of investments that trigger adverse tax consequences. That’s why, regardless of your preferred approach to funding long-term care expenses, it is essential to plan early.
Much like retirement planning, the sooner you begin, the more options and flexibility you have and the greater your likelihood of achieving a successful outcome. Your SunTrust advisor can assist you in estimating just how much you may need to cover out-of-pocket healthcare costs in retirement (including the costs associated with long-term care) and reviewing the various long-term care protection options.
For families whose primary goal is the tax-efficiently transfer of assets to the next generation, however, life insurance with a long-term care rider may be an optimal way of achieving greater peace of mind by protecting your legacy while ensuring you have sufficient assets earmarked to provide the type and level of care you desire.