Washington’s impending Long-Term Care Act has many people wondering if it’s worth the hassle to obtain private insurance and opt out of the state program.
According to David Donhoff with Leverage Planners Wealth Management, the answer in most cases is "Yes". Instead, opting for long-term private insurance often makes the most long-term sense, both financially and for your personal security.
He went on to explain two different ways to get out:
“You can get the traditional type of policy, which is a use-it-or-lose-it premium. It's just like every other insurance policy where you pay in advance, and if you get sick then it's there for you. But if you stay healthy, you don't get a refund of your money.”
The second way earns you money while you’re not using the policy:
“Then there's asset-based long-term care, which is a kind of depository account at an insurance company,” Donhoff said. “No-cost charges, penalties or fees, and sometimes they'll actually pay an interest rate on your deposits and give you a nickel of benefit.
“So, both kinds can get you out of the long-term care payroll tax.”
Choosing which one is right for you depends on a lot of factors, mainly age, gender and overall health. A traditional policy is probably better for younger, healthier people, as they don’t have to come up with a large cash deposit and can cancel it after the required period is over.
For more established adults with some safety net money in the bank, asset-based long-term care may be the way to go. Banks offer negligible interest rates on savings accounts, but an asset-based insurance plan can provide about 10 times what a bank can.
“And that covers the long-term care exemption, the payroll tax exemption, and down the road if you don't like it, you can back out, and get your money out relatively easy [with] no charges or penalties. And you made the interest along the way,” Donhoff said.
How long you plan to keep your money in an asset-based plan will determine your interest rates. If you plan to leave the money alone for a long stretch of years, a Roth alternative could earn around 5-9%.
Leverage has created a website to help you navigate the ins and outs of the new law, StopTheTaxBleed.com.