Tuesday, September 25, 2018

Paying for Healthcare in Retirement Problem Solved

Mr. and Mrs. Johnson are thinking about retirement. Like many Baby Boomers, they face the challenge of saving money for retirement and managing future healthcare costs. The Johnsons find themselves with insufficient personal savings to pay the bills if one of them gets sick. To protect themselves and cover this long-term care gap, they could purchase a standalone LTC policy so that they don’t have to experience a financial shortfall should an LTC event take place for either of them during retirement.

After some exploration, the Jonson’s decided that a standalone LTC policy didn’t provide enough flexibility for them and had potentially increasing premiums that lasted too long.  They also didn’t like the fact that if the traditional LTC coverage is never used, they get nothing for the premiums paid.  In other words, they didn’t like the “use it or lose it” nature of traditional LTC coverage.

Instead, they opted to add a chronic illness rider* to a permanent life insurance policy which would allow the death benefit to be used for care while living.  If not used for care, the (remaining) death benefit provides a tax-free payment to the beneficiary.  Unlike traditional LTC, these hybrid-type solutions can be structured to have short premium payment periods and the premiums can be structured as  guaranteed.  And many plans have a significant surrender value if the clients decide coverage is no longer needed.

The Solution
Female, age 60, Issued Preferred Non-smoker

Male, age 60, Issued Preferred Best Non-smoker              

Each Policy:
  • $500k level death benefit with a Chronic Illness Rider, Mr. and Mrs. Johnson are the owners of their own policies and the beneficiaries of each other’s 
  • Guaranteed Universal Life Policy 
  • $10,942 annual premium for her and $10,912 annual premium for him – Payable for 20 years, with no premium thereafter, and coverage remains inforce through age 105 – guaranteed
First Year Target Premium for Both: $20,300
*Interesting note: An LTC certification is not needed to sell most chronic illness riders on a life insurance policy. 

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