Asset-Based Long-Term Care

Asset-Based LTC at a Glance

• Protects against rising long-term care costs
• Combines life insurance or annuity benefits with LTC coverage
• Unused benefits typically paid to heirs
• Premiums often guaranteed—no future increases
• Flexible access to funds for other needs

Building an income-rich retirement requires diligent saving and careful planning. Achieving financial security later in life starts with regular contributions to tax-advantaged retirement accounts, such as a 401(k) or Roth IRA. As you approach retirement, it becomes essential to create a comprehensive financial plan designed to provide the income needed for your desired lifestyle. t’s time to ensure your strategy is airtight as you near your retirement years.

However, one major factor that can disrupt even the best retirement plans is the high—and often underestimated—cost of long-term care. Many Americans haven’t fully accounted for these expenses in their retirement outlook.

Recent research shows that life expectancy is increasing. Still, most people have not made specific plans for future long-term care needs. A Northwestern Mutual study found that while 56% of Americans say saving for long-term care is a priority, 73% have not developed a strategy for it.

Ignoring the Cost of LTC at Personal Peril

As Forbes notes, “Americans’ Estimates of Long-Term Care Costs Are Wildly Off.” According to the Genworth Cost of Care Study, most people underestimate in-home care costs by nearly 50%. Actual median annual costs for long-term care range from $61,776 for an in-home health aide to $108,408 for a private nursing home room—and these costs are expected to rise significantly in the coming decade.

If you want a personalized projection, Genworth’s LTC Cost Calculator lets you enter your state and expected retirement year to see local estimates for future long-term care needs.

Understanding these numbers is crucial for effective planning—especially as asset-based long-term care options become more widely available.

How do asset-based LTC products compare to traditional insurance? The table below highlights key differences to consider as you evaluate your options:

Comparing Asset-Based LTC and Traditional LTC Insurance

Who Might Benefit from Asset-Based LTC?

• Those concerned about losing premiums if LTC isn’t needed
• People with existing life insurance or annuity assets
• Couples seeking joint LTC coverage under one policy
• Individuals who want flexibility and legacy protection

When planning for future care needs, be mindful of common mistakes and how to avoid them:

Asset-Based Long-Term Care Offers a New Strategy

An asset-based long-term care policy is typically a life insurance contract or annuity that allows you to access the policy’s death benefit or cash value for qualified long-term care expenses. This approach gives you access to financial resources if you need care, while also ensuring your beneficiaries can receive a death benefit if the coverage is unused.

Another potential advantage: these policies are often protected from future premium increases. Asset-based long-term care options are relatively new, introduced over the last decade. The Pension Protection Act (PPA) of 2006 provided tax advantages for these “combination” or “linked-benefit” plans. As of 2010, the PPA allows tax-free distributions of life insurance or annuity cash value to pay for long-term care needs.

One reason this strategy is gaining interest is it addresses a key objection to traditional LTC insurance: if you never need care, you might lose all premiums paid. Asset-based policies may include a Return of Premium feature—offering a full refund of your premium at any time. If this is important to you, review the contract’s details carefully.

A Cornerstone for a Retirement Plan?

Many insurance professionals are now considering asset-based long-term care as a cornerstone strategy for clients who have accumulated deferred annuities they don’t intend to use for income. By leveraging those assets into an asset-based LTC product, you may find new options for care planning.

In certain cases, a 1035 Exchange provision allows policyholders to transfer funds from an existing life insurance policy or annuity to a new policy, without triggering taxes. This enables tax-free use of funds with a multiplier effect for long-term care needs. IRA assets may also be eligible for similar strategies, depending on the circumstances.

Potential Cost Relief for Couples

Some asset-based LTC policies cover two lives—whether you’re married or not—providing lifetime, tax-free long-term care benefits for both individuals under one contract. This can be a valuable addition to a couple’s retirement income and survivorship plan. Growing interest in these linked-benefit policies reflects their versatility and appeal.

Asset-Based Long-Term Care Scorecard

Linked-benefit annuities or life insurance policies may offer these advantages:

• Premiums that never increase
• Benefits that never decrease
• Asset growth at guaranteed rates
• Access to funds if needed
• Death benefits if not used for LTC
• Return-of-premium options
• Lifetime LTC benefits

The features of linked-benefit contracts or policies can vary depending on the insurer, product type (life or annuity), and your state of residence.

As with any product, consider possible limitations. For example, will you receive a lower LTC benefit compared to other solutions? Are you paying for a life insurance benefit you might not need?

Frequently Asked Questions: Asset-Based LTC

Key Takeaways

• Asset-based LTC offers a flexible, protected way to plan for future care needs
• Unused benefits are not lost—often paid as a legacy
• Review features, costs, and benefit triggers before choosing a policy