Many seniors who have been fortunate enough to accumulate some wealth in their lifetime worry that it could all be taken away by a single, prolonged stay in a nursing home. They are right to be concerned. According to the American Association of Homes and Services for the Aging, a private room in a nursing home now costs $74,806 per year. And since Medicare does not cover extended nursing home stays, a few or even a couple of years in a nursing home could deplete a lifetime of savings and investments.
One solution is long term care insurance. The trouble is that the premiums tend to be high. Even if seniors can afford the premiums, many have a hard time justifying the expense. After all, there is no guarantee that they will ever need long term care. Why use part of a fixed income to pay for something that will never be used?
One possible solution that seniors might find more acceptable is a single-premium life insurance policy with a long term care rider. The fact that it is a life insurance policy guarantees that it will be “used” at some point. The long term care rider offers flexibility of benefits should the policyholder ever need full-time nursing care.
As the name implies, single-premium life insurance is paid for upfront with a lump sum. The face value, or death benefit, is larger than the premium—two or even three times larger. A single-premium life insurance policy offers a guaranteed return and can never be cancelled for missed payments, since all the payments are made at the outset. Since most states do not tax life insurance benefits, the death benefit can be distributed among the heirs with little if any estate tax liability.
The single-premium life insurance policy can be structured to allow for tax-free access to the death benefit to pay for long term care insurance. With a long term care rider, the money can be withdrawn gradually to pay for a nursing home care or full-time in-home nursing care. If the policyholder dies before all of the death benefit is spent, the remaining benefit will pass to the beneficiaries.
By marrying a definite use (life insurance) to a possible use (long term care insurance), the single-premium life insurance policy offers the practicality and the flexibility that can help seniors protect the wealth they have spent a lifetime accumulating.
