By Rose Greene
Originally published on Advocate.com September 15 2011 4:00 AM ET
“A penny saved is a penny earned,” Benjamin Franklin said. But what happens if your savings run out before you do? That’s where long-term care planning comes in. One of the best ways to plan for what happens as you age, without putting your hard-earned net worth at risk, is to invest in an asset-based long-term care policy. Since half of all gay or bisexual men and 25% of all lesbian or bisexual women live alone after 50, such a policy is a wise investment that’ll take care of you when you’re unable to care for yourself.
An asset-based long-term care policy is basically is a modified universal life insurance policy, which is a tax-advantaged investment in which the cash value of your monthly premiums is credited with interest and you can take out loans based on your input without tax penalties (it’s often considered an alternative to Roth IRAs for folks who have income restraints that prohibit them).
But instead of a traditional death benefit you’d get with most life insurance (that big lump sum you got when grandma died), this type of policy provides you with money for extended in-home or assisted living care. It’s purchased the same way as a universal life policy, and it includes a long-term care rider provision and a death benefit if you end up not needing that long-term care. It’s not a “use it or lose it” plan, like your auto insurance.
In addition, with an asset-based long-term care policy, you won’t be saddled with monthly or annual premiums that increase as you get older. Instead, in most cases, you’ll make a single substantial initial payment called a single premium. The account grows tax-deferred and is taxed when you withdraw money; it still transfers free to your beneficiary. The size of that payment is variable depending on what daily amount you want to receive ($50 to $500 is average), the maximum lifetime benefit you want, type of coverage, and optional riders.
This kind of policy pays for a wide range of long-term care needs, anything from transportation to the doctor’s office to in-home meal preparation to end-of-life hospice care. You can also borrow from it, earn interest on it, cash it out, or leave it to your next of kin when you die without paying additional taxes on it.
You can buy such a policy for yourself or for an aging parent in order to protect his or her estate from overtaxation. For LGBT people, the nontaxable death benefit can be paid out to your same-sex partner or anyone you designate—regardless of whether your union is recognized in your state.