Thoughts, ideas, suggestions and education from financial adviser Jim Ludwick, Founder of MainStreet Financial Planning, Inc. of Odenton, MD; Washington, DC; New York City, and Santa Barbara, CA

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Saturday, February 11, 2012

Hybrids help solve problems


I just spent two days locked up in a room  (sorta) in Tampa, Florida, (in the middle of winter!), talking about life, disability and long term care insurance.  Hey, don’t tune out just yet!

Every couple of years, some of us old dogs have to learn some new tricks. The world is changing pretty fast.

The operative word this year at our Low Load Insurance Academy was ”hybrid”, but not the car kind.  Both annuities and life insurance policies are sprouting wings that include coverage for long term care needs – and at a tax advantage in most cases.

If you've heard the pitch lately, you probably know that 70% of people age 65 today will need long term care services at some point in their lives.  Wow, the number has gone up.  I remembered when it was 60%.  We’re living longer and that is the result.  The second fact presented was that the national  average cost of nursing home care is up to $87,000 a year.  Another wow.  I was thinking maybe $80,000.

Now we financial planners love it when clients are predicted to “self fund” for long term care needs. That means they’ve saved or inherited enough money or property to see them through many years of high cost care. Remember that 70% figure?

Some people can self fund and hedge their savings by purchasing long term care insurance with a long elimination period or self fund and buy a short term policy to cover their needs until they can sell property that will provide a source of funding.
 
If people can’t self fund for all or most of their risk of needing long term care services, then you can buy insurance to cover that need, but guess what? Most people people we meet don’t buy LTCi (code for Long Term Care insurance).  Why?  “Because,” they tell me, “what if I don’t need it?”  The insurance industry has heard that excuse and come up with other options.

These days, both life insurance and annuities from several highly rated insurance companies offer long term care riders or supplements that turn them into a multi use product.  Being able to draw out assets from a life insurance death benefit or an annuity with no income tax implication is an attractive alternative.
 
So the next time you’re visiting with your financial planner ask about hybrids.  As usual, your mileage may vary.