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Using IRA & Qualified money to fund long term care insurance

by Jack Lenenberg

State Life One America Asset Care  State Life Asset Care III puts your retirement money to work

You may feel long term care planning is just a decision as to whether or not to buy long term care insurance.  Long term care planning, however, entails so much more.  Long term care planning is about how you will fund this expense, where you want to receive your care, and who you want to care for you.  Unfortunately, many people fail to plan for long term care which is problematic because the risk of needing care is high, and the cost of care is expensive.

We receive many calls from individuals who want to begin the long term care planning process yet have a majority of their assets inside IRA's, 401(k)s and other qualified retirement plans.  The question we inevitably receive is: Can you re-position some of your IRA or 401(k) money and receive long term care insurance?  Your answer is Yes, absolutely.

The Asset Care policy issued by OneAmerica and underwritten by The State Life Insurance Company will accept Qualified funds. The State Life Asset Care policy is the only policy within the long term care insurance marketplace which will allow you to rollover retirement money to fund your long term care plan.  Fortunately, Asset Care is a superb long term care insurance policy option.

Overview of the Asset Care Policy Portfolio from OneAmerica

Asset Care is a hybrid long term care insurance policy with a life insurance foundation that can provide you with Lifetime benefits for long term care.  The policy may be purchased on an individual basis, or it may be purchased on a joint basis and provide long term care coverage to two insureds such as you and your partner.  

Hybrid long term care insurance policies provide:

  • Paid-up life insurance should long term care not be needed
  • Fixed guaranteed premiums 
  • Cash surrender value should you change your mind and wish to cancel coverage

The State Life Asset Care policy is a unique hybrid long term care policy in that it also provides:

  • Patented joint coverage for 2 insureds
  • Lifetime long term care benefit periods

Asset Care portfolio has 4 different options to fund the policy.  You can elect the funding method you prefer to suit your objectives.

  • Asset Care I:  Single premium funding
  • Asset Care II:  non-qualified annuity exchange
  • Asset Care III:  Qualified retirement account funding such as IRA, 401(k) and 403(b).
  • Asset Care IV:  Flexible premium funding such as 10 Pay, 20 Pay or Lifetime payments.

Let's take a close look at Asset Care III.

How Asset Care III works --- what you need to know

Asset Care is a hybrid long term care insurance policy which combines life insurance with long term care coverage, guaranteeing you a payout even if long term care is not needed.

Asset Care III allows you to rollover your retirement funds to an Individual Retirement Annuity.  An annual withdrawal from your IRA annuity over a 20 year period will fund your Asset Care life contract and this annual withdrawal will also be able to satisfy your Required Minimum Distributions (RMDs). 

Concurrent with your qualified funds rollover, you may purchase the optional Lifetime long term care rider at policy issue.  

Should you need care in the future, and your Asset Care III insurance cash value be exhausted, your lifetime LTC rider will extend your long term care insurance coverage to unlimited benefits for your life.

For many of you, your qualified money is your largest asset you own.  Asset Care III is an all-in-one solution that will allow you to transfer your existing IRA into a retirement annuity which then makes automatic transfers into your Asset Care III policy.  The transfer of your individual retirement annuity cash value to your Asset Care policy over 20 years is automatic and seamless. You benefit by spreading out over 20 years your annuity withdrawal to minimize your annual taxable implications while also satisfying your RMDs.

The best part is all of this is done automatically for you.  You do not have to worry about paying your life insurance premium or satisfying your RMDs.

Asset Care III can also cover two insureds.  

Should you have a partner, you can use part of your individual retirement account to buy coverage not only for you but also for your partner.

Asset Care is the only hybrid long term care policy in the marketplace that provides joint and unlimited long term care coverage.

Let's take a look at an illustrative example of Asset Care III

Here is a sample plan design for a married couple residing in Virginia.  Husband age 65, Wife age 60.

Let's take a close look at how we can use an IRA rollover to secure lifetime long term care benefits for two people.

For the purposes of discussing this policy, let's assume our married Virginia couple are seeking monthly comprehensive long term care benefits of $5000 month each which can help to cover the cost of long term care in Virginia.

Asset Care III illustration

To enable our Virginia couple to purchase long term care benefits of $5000 per month per person, the couple would have to rollover from one of their IRAs an amount equal to $69,958.  Through annual withdrawals this rollover amount would then fund the couple's Asset Care joint life insurance policy over 20 years.  The annual withdrawal amount will be $4565.  Each year the couple would receive a 1099 for $4565.

Should long term care be needed, the cash values inside both the IRA and the life insurance policy may be accelerated by 4% over a period of 25 months.

Once the cash value is exhausted, the Virginia couple would continue to receive Lifetime long term care benefits of $5000 month per person because their lifetime long term care rider which was elected at policy issue will be in effect.  

The single pay premium to purchase the lifetime long term care rider to cover two insureds under this plan is $39,212.

Alternatively, the couple could fund their Lifetime long term care rider through an annual premium of $2242 year, which is guaranteed and can not be increased by State Life.

So, the plan for our couple looks like this:

Husband age 65:  $5000 month long term care benefit, Lifetime benefit period

Wife age 60: $5000 month long term care benefit, Lifetime benefit period

The couple does not share their coverage.  They each own individual unlimited lifetime benefits.

If the couple needs care at the same time they would receive $10,000 month, unlimited lifetime benefit periods.

Single Pay option:  IRA rollover $69,958, non-qualified funds of $39,212:  total premium required $109,170

Or:  IRA rollover $69,958 + $2242 annual premium for life.

The couple would receive a 1099 distribution annually for 20 years.

If care is needed within 20 years, the Waiver of Premium benefit will pay the life insurance premium and a distribution will not be required.

If care is needed, long term care benefits received from the Asset Care life insurance policy and from the LTC benefits continuation rider are income tax-free.

If care is not needed, the death benefit will pass tax free to the heirs of the couple at the second death.

Leverage your retirement funds to protect your retirement

Asset Care III helps you to effectively leverage your tax-qualified funds, such as IRAs and 401(k)s, to protect your retirement from the high financial costs of long term care.

Long term care planning involves many different options to consider.  My goal is to help you best sort through your options to determine the best policy and plan design for your needs.

We work with only the best long term care underwriters including OneAmerica/State Life, Lincoln Moneyguard, Mutual of Omaha, Mass Mutual, Pacific Life, Transamerica, Nationwide, Genworth and more.

To find out more about your options and to receive customized illustrations please contact myself directly at (800) 891-5824.  Or you may complete my quote request form.

Signature Ltc

Jack Lenenberg

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