Have you ever thought about the need for financial protection from an unexpected health change, but are reluctant to pay a new premium? Recently there’s been some buzz about a “new” way to pay for LTC insurance: using retirement funds to pay the premium for LTC insurance. Although this strategy has been around for years, it can be an excellent way to pay for long-term care coverage for those over the age of 59½.
In the Boston area where I live, the cost for care today can range from $7,000 to over $15,000 per month. The cost of care tends to double every 15 years or so. Some people are concerned that these astonishing costs could impact their retirement portfolio, but they just can’t bring themselves to pay for the protection. One strategy may be to utilize a small portion of IRA funds for this purpose. Even a portion of one spouse’s IRA could be used to cover both spouses’ long term care needs.
A company-to-company transfer (tax free) could be used to fund a hybrid life/long-term care policy. A hybrid long term care insurance policy includes a death benefit if care wasn’t needed. Compliant with the Secure Act of 2022, a policy offered by one of the insurance carriers I work with includes a built-in annuity. Because of the included annuity, the hybrid long-term care insurance policy can be funded from an IRA, even an inherited IRA.
Plus, the insurance company provides a bonus to boost IRA funds that is applied to the new insurance policy. Each year for 10 years the built-in annuity automatically distributes the funds into a hybrid life/LTC policy that emphasizes benefits for care. There are more details to the plan, but at a high level it’s important to know that retirement funds can be used for this purpose.
An attractive feature of a hybrid policy is that if care isn’t needed, your beneficiaries get money back. The insurance company must pay out no matter what.
There are other strategies for using retirement plan funds to pay the premium for LTC insurance. Paying long-term care insurance premiums from an IRA can be a valuable strategy to ensure that you have the necessary coverage while protecting the balance of your retirement funds.
It’s likely that you or your spouse will need some assistance in the future. Please don’t avoid the conversation; your family will appreciate it.