It is important to account for your long-term care insurance when making your retirement plans to ensure you are financially well protected in case of an unexpected illness or disability. If you don’t account for your long-term care insurance when planning your retirement savings, you will inadvertently have to dip into your savings to fund your medical expenses.
In fact, with the rising costs of medical care and assistance, it becomes all the more important to have your long-term care insurance in place to secure your life after retirement! If you are considering investing in a LTCi, you must also ascertain which source of income you will be using to pay your LTCi premiums. There are a number of ways to fund a long-term care plan, these include; monthly payments, annual payments, a single lump sum payment or a combination of lump sum payment. Not just that, you also have the option of making your premium payments through other financial assets and accounts, apart from your regular income. For instance, you can fund your LTC with your IRA, acquired annuities or even by creating a special savings account. Here is a comprehensive list of payment avenues you can leverage to make your LTCi premium payments:
The most obvious option when it comes to LTCi premium payments is your personal income. You can choose between the traditional and hybrid plans and either choose to make monthly payments or annual payments, depending on your personal financial flexibility. Many LTCis also provide the option of making semi-annual or quarterly payments along with the option of allowing the premium amount to be automatically deducted from your bank account.
If you are opting for traditional or hybrid payment plans, you can also use your personal savings to fund your LTCi. If you have a large amount saved up, you can even go for the single payment asset-based plan and eliminate the need to make recurring payments altogether.
3. Self Directed IRA
If you are above the age of 59½, you also have the option of withdrawing funds from your retirement account to pay your LTCi premiums without a penalty. If you do intend to make your LTCi payments using your IRA, it is best to withdraw a lump sum and select an Asset Based plan to make the most out of your long-term care insurance. By using your IRA to make a lump sum payment, not only are you immediately protected under the LTCi but also receive tax breaks as you can spread the tax bill out for up to 20 years. Funding your LTCi using your self directed IRA is definitely an option worth considering as it is the most profitable option in terms of tax breaks!
Another way to fund an Asset Based LTCi payment plan is by using your existing deferred annuities. Due to the changes to the Pension Protection Act, using your existing deferred annuities is also one of the most preferred ways to fund your insurance premium.
For instance, if you have an existing annuity that was originally purchased for say $20,000 and its current day value is $100,000, you wouldn’t be able to withdraw the money as it would require you to pay tax on the growth of the annuity. Instead, you can simply transfer the annuity into a qualified long-term care plan that provides them with an immediate value of $100,000 completely tax free!
5. Home Equity
While it may seem unorthodox, you can also use your home equity to fund a long-term care plan. By availing a home equity loan, you can borrow a lump sum through a home equity loan to fund an asset based long-term care plan and pay off the loan over several years depending on your financial flexibility.