Home  >  Financial Articles and Q&A  >  I have a universal life policy for $150,000. I am 55,...

I have a universal life policy for $150,000. I am 55, female, married. I want to purchase long term care insurance. How could I use my policy to purchase long term care insurance and is that a good idea? My husband does not need the life insurance money.

Would the life insurance or long term care insurance be a better investment against risk? I can still afford ltc insurance without using my universal life policy but wonder if those funds would be better invested?

May 22, 2013 by C from Foristell, MO in  |  Flag
6 Answers  |  6 Followers
Follow Question
5 votes

First of all, you need to give serious thought to surrendering an existing life insurance policy. There are a myriad of issues around this. If you were gone, your income, your retirement savings contributions, contributions to the household, the cost of funerals, wakes, etc. are just a start. We always recommend conducting a probability analysis around this topic. I know - not a very simple answer, but eliminating a life insurance policy is serious - the odds insurability can go down every year and the cost of insurance generally goes up every year. In other words, if you lose a policy, it may be impractical or impossible to get another. It's a big decision.

With that being said, I like your consideration of a long term care policy. If the life insurance is not needed than any available net cash value (above taxable gains, surrender charges, etc.) could be available to help finance the long term care policy. Also, if you are eliminating the UL premium that now available cash can go to the LTC policy. The LTC policy is another big topic. Consider shared LTC policies for both you and your husband. If you only get a policy for you and your husband ends in situation where you and family members can not care for him, his extended care could end up using all your assets. The same thing could happen to you in relation to your husband's future. Long term care policies have lots of variables - inflation protection (very important), elimination periods, maximum daily benefits, etc. Consider shared policies with decent benefits that fit into your budget. Work with an advisor that will help in the process.

This is a lot of info, but I hope it helps. Mark

Comment   |  Flag   |  May 22, 2013 from Warwick, RI

1|600 characters needed characters left
4 votes

Hi C, I agree with the group and strongly urge you to look at the asset based type solutions. Translation - Life or annuity chassis products that give you a death benefit in case you never need to pay out of pocket for care, a long term care benefit in case you do need to pay for care, and a cash value in case you win the lottery and want your money back. One America, Genworth and Lincoln Financial all have solid products for this purpose. One America has one attribute that the others do not. They offer a Lifetime Continuation of the benefit for a small annual premium. It's guaranteed to never go up and if you do a joint policy with you and your husband, there would be benefit dollars available as long as either is alive.

Comment   |  Flag   |  May 22, 2013 from Franklin, TN

1|600 characters needed characters left
3 votes

Mark gave some great advice there. One more thought is that a lot of insurance companies now offer life policies and annuities that have Long Term Care benefit riders. In essence, they can do "double duty" to help out with Long Term Care costs into the future. I'd really recommend you finding an objective financial advisor in your area who can help you make the best decision for you. It might be possible to "trade" your existing policy for one with LTC benefits included.

Comment   |  Flag   |  May 22, 2013 from Springfield, MO

1|600 characters needed characters left
3 votes

C, there are a lot of moving parts to your UL policy, and they are important because, other than need, it will determine if you have value that you are giving up.

How long have you been paying premiums, what are the premiums going forward, how much cash is built up, have you paid all the admin expenses on the policy?

Sometimes there is an admin expense that is loaded onto the first 7 or 10 or 14 years. FYI, that is a key reason why some UL policies can build cash value much quicker than others. So you may have a policy where the admin fees has been recently paid; now you policy's cash value will start to grow rapidly. I don't recommend life insurance as an investment vehicle, but it's possible that you are in a position where you've just gotten over the hump. In regard to making a decision, this is the toughest position to be in.

If you have been building cash value over years and surrender it, you will have to pay tax on the gain over cost basis. It might be wiser to get a 'Reduced Paid-Up' policy. That is where the insurance company will give you a paid in full policy for whatever your current cash value will buy.

If you have reasonably low cash value and you don't see the value in paying continued premiums, and your husband really doesn't care, and there are no children or grandchildren that you want to name as beneficiary, then you truly might not need it. But be sure, because 'you don't know what you've got til it's gone'. Keep in mind that you are 55 now; if you breathe your last breath at age 95, in 40 years, with inflation, it might cost half of that just to put you in the ground

My current preferred method to provide long term care is with, coincidentally, life insurance, or alternatively an annuity, with a long term care rider. The rider will pay 2-3 times the face amount if you cannot perform 2 of the 6 activities of daily living. Hopefully, you still are in a Preferred health classification;, you can use this strategy of transferring your cash value through a tax free 1035 exchange to a new policy, either as all of your long term protection, or in conjunction with a stand-alone LTC policy.

This should be part of your family's overall financial plan. Seek professional advice. Consider the alternatives.

Comment   |  Flag   |  May 22, 2013 from Delray Beach, FL

1|600 characters needed characters left
3 votes
Elliott Appel Level 11

It is difficult to say whether life insurance or a long-term care insurance policy would be a better investment against risk. They are both addressing different types of risk. Are you more interested in possibly protecting the depletion of your assets if you were unable to care for yourself or provide money when you pass away for household costs, end of life expenses, transition money for your significant other, etc.? Before making any decision or diving further into specifics, I suggest you make a list of your goals and wishes in order to see what strategy would accomplish them the best.

Like others have mentioned, I would work with an advisor to determine if you have a need for life insurance before surrendering your current policy. Sometimes there are goals or factors you have not considered.

Since there have been other responses about possibly obtaining life insurance with a long-term care rider, you should first figure out if you need the life insurance. Do you really want to pay for life insurance if you do not have a need for it? If you decide to purchase a long-term care insurance policy by itself, think carefully about whether you could afford the policy in the future. Premiums could increase in the future.

We often address questions like this on our blog, so if you you want to learn more about other topics, check out http://www.empirical.net/empirical-wealth-management/empirical-blog/.

Comment   |  Flag   |  May 22, 2013 from Seattle, WA

1|600 characters needed characters left
2 votes

Mark and Michael have made some very good points on this issue. These areas of financial planning can get complicated. Consider the purchase of a LTC policy that would offset the risk if needed, and if you never need it, the premium can be paid back to you in the form of a death benefit or return of premium. You should seek professional advice on this decision so that your personal situation is fully understood. Hope this helps.

Comment   |  Flag   |  May 22, 2013 from Asbury Park, NJ

1|600 characters needed characters left