| If you are out shopping for long term
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| | $4,200 after tax to pay the premium.
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| care (commonly abbreviated as LTCI or
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| | They can't spend the $91,300. It can't
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| LTC), I'm going to encourage you to take
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| | grow. Basically, they have "committed"
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| a look at a way of providing long term
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| | $91,300 of their assets to pay the
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| care benefits that is probably new to
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| | premium on their LTC policy. That's the
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| you. On the other hand, if you are in the
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| | one "job" of this $91,300. The premium
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| crowd that thinks they will never need
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| | may only be $4,200 a year, but the
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| long term care, I would also suggest you
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| | opportunity cost is $91,300.
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| evaluate this line of thinking.
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| | Let's take a look at another of their
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| Dick and Jane are both age 65, recently
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| | alternatives. It's called asset based
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| retired and models of good health. They
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| | long term care. How it works will unfold
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| have ignored the long term care subject
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| | as I provide the example and contrast
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| until recently. They just put Jane's
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| | below.
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| mother, who is 88, into a nursing home.
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| | One approach to asset based long term
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| Talk about sticker shock! She is in a
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| | care involves re-positioning $91,300 of
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| nice place, but Dick and Jane are not
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| | Dick and Jane's CD to a combination long
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| 100% certain that her assets will allow
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| | term care/life insurance policy plan with
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| her to stay there for the rest of her
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| | an insurance company. Here's what moving
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| life.
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| | this money does for them...
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| Consequently, they have been out looking
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| | The money on deposit with the insurance
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| at long term care for themselves. They
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| | company grows at interest, but it is
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| figure they can afford to insure a
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| | tax-deferred interest so the insurance
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| portion of what it might cost them if
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| | company will not send them 1099s every
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| they ever need some form of LTCI, so they
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| | year for an amount they have to pay tax
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| are looking at a benefit of $3,000 a
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| | on like the bank is required to do. In 10
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| month. The premium is around $4,200 a
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| | years, assuming current rates, the
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| year.
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| | $91,300 will grow to $127,000; in 20
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| Here's a new concept that Dick and Jane
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| | years $161,000. The CD, remember, does
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| must become accustomed to now that they
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| | not grow, as its job is to spin off
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| are retired. They both had good jobs
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| | interest to pay the annual $4,200 premium
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| during their working years. If they ever
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| | on the traditional LTCI plan.
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| wanted to buy anything, it was just a
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| | If either Dick or Jane needs any form of
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| question of looking at their income to
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| | long term care, the insurance company
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| see if they could swing the purchase.
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| | plan will pay them $3,900 a month for 50
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| Pretty straightforward.
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| | months--$900 a month more than the
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| Now that they are retired, most of their
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| | traditional plan.
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| expenditures are going to come from
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| | But here's the real kicker.
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| investment returns on the assets they
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| | If Dick and Jane never need long term
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| have accumulated, not income from
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| | care, then the camp that doesn't buy it
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| working. So they need to understand the
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| | would have been right. If Dick and Jane
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| difference between premium cost and
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| | bought the traditional long term care
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| opportunity cost. Here's what I mean...
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| | plan, in 10 years they would have paid
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| If they elect to buy this $4,200 a year
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| | out $42,000 in premiums and about $7,400
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| long term care policy, the money has to
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| | in taxes on their CD interest in order to
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| come from somewhere. Chances are it's
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| | net out the required premium. That's a
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| coming from the interest earned on
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| | total of $49,700. The $91,300 portion of
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| perhaps a CD or an annuity. But there is
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| | their CD would still be $91,300.
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| an opportunity cost associated with
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| | However, if Dick and Jane never need long
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| paying the premiums from earnings on any
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| | term care, chose the asset based long
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| asset.
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| | term care plan and both die, for example
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| Let's say they are going to pay this
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| | in 10 years, the outcome is different.
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| $4,200 from the interest on a CD they own
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| | They have paid no annual premiums and the
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| which is earning 5.4% interest. Since
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| | life insurance company will pay about
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| interest is taxable, and assuming they
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| | $198,000 tax free to their kids.
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| are in a 15% tax bracket, they would have
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| | Which sounds like a better plan?
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| to have $91,300 in that CD to produce
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|
