Another important factor for insurance planning is your risk of needing long-term care. Under the current government budget restraints, we now are required to pay for our care in nursing homes or for in-home care for as long as we are able to. In general, the government wants us to spend down our wealth to certain limits before Medicaid will pay for our care. There is nothing wrong with that, but if you want to be sure of leaving a substantial amount of assets to your spouse or children or a charity, then life insurance is one way of replacing lost money due to a catastrophic illness. That is, if you are forced to spend money for health care, a life insurance policy can replace some or all of the assets that may be spent before you die.
Clients Ralph (sixty-seven) and Eve (sixty) had enough 401(k) money to care for a major illness that could wind up landing him or her in a nursing home for a few years. However, they feared a prolonged illness could entirely deplete their principal and other assets. Rather than purchasing long-term care to cover the cost of a nursing home, Ralph bought a $150,000 life insurance policy in order to guarantee his children would have an inheritance. Since they each have children from prior marriages, Eve pur-chased $200,000 of protection. Listing their children as owners on the con-tracts made sure that upon their death the proceeds of each policy would go to the children free of income tax and without estate taxes. Smart planning techniques can create and transfer wealth from one generation to the next, saving taxes to boot.
Another way to protect your assets from the spend-down provision con-nected with Medicaid is to purchase long-term care insurance. Both life and long-term care insurance may cost less before you retire. It is even possible that you can get group rates on these policies, which may be less than individual rates. But it is wise to get quotes from companies besides your company group administrator. When I wanted to add life insurance protection at age fifty-one, I found an individual term insurance policy that cost me less than my corporate group policy. Was I surprised! I had been convinced that company-offered products were always less expensive. The fact that a group is a “captured” society affects group insurance rates, raising them or lowering them. By contrast, individual rates are set in a more competitive insurance environment with more people insured, possibly reducing premiums below what groups offer.
Some expenses may be cut after retirement. Disability insurance, for one, may no longer be needed, since it is intended to replace income lost from an injury related to work. When transitioning to retirement, you may save money by letting the coverage lapse, unless you feel you are going to work at another career; if so, then see whether the coverage can be moved from a group to an individual. Some can and some cannot. When you are no longer employed, Social Security tax will disappear and contributions to your 401(k) or TSA will disappear, too. The extra money saved from no longer buying lunch or paying to travel to and from work can be diverted toward extra insurance.
