Insurance

Author: Rocco Beatrice       If you are considering purchasing long term care insurance, let me cut through all of the noise and share with you the dirty secrets of the long      term care insurance industry which will help you save $100,000 on Long Term Care Insurance Costs.     Secrets to cutting your long term care insurance expenses Hidden Secret #1   Long Term Care Policies are very tricky. Pay close attention for the following details. Some Policies:   Don’t cover the full cost of care: They may only cover $200 per day when care costs $400 Don’t increase coverage over time: Costs for care go up every year and your coverage should be adjusted for inflation Only cover costs in the nursing home for one or two years: The average stay is more than 2 years, will you be covered for your entire stay? Only cover certain types of care Think nursing home vs. assisted living Don’t consider if you actually need to go into a nursing home. Only 50% of the population needs to go to a nursing home on average – are you wasting $100K on something that you will never need? Hidden Secret #2   You don’t need a LTC policy. What, you ask? You actually don’t need to spend $100,000 on a long term care policy if you know the rules and how the system works.   Let’s compare long term care insurance costs to other options that you have available:     The true cost of long term care insurance can vary significantly from 80K to 150K per spouse depending on age, health, and the quality of the policy coverage. If you are searching for long term care insurance today, you are more than 5 years from the time that you expect to need long term care services. This is because insurance companies would never sell a policy to someone seeking to use it in the foreseeable future or it would be so expensive it would not make economic sense to purchase. This is very important – we will see why in a moment. If our assumptions are true, then you have a much better option available to you than a long term care insurance policy, solidifying the case that you will be able to save $100,000 per spouse. Let me explain:   How Long Term Care Works   One just needs to understand the rules and how the system works. Typically, you are not the one that gets to decide whether you are going to a nursing home or not. Your doctor is the first gatekeeper who makes that decision. The first step will be to send you to a “rehab” center. This typically initiates a social worker who oversees your case – the second gatekeeper. Medicare (not Medicaid) typically pays for the first 20 days of care. If there is any chance of you returning home, Medicare will pay for up to an additional 80 days.   If the doctor and social worker decide that you cannot go home they will send you to a nursing home, regardless of what you want, and the facility only has a single major question:   How are you planning to pay your for your nursing home stay?   Do you have LTC insurance to pay for the nursing home stay? Do you have assets that will cover the bill of $8-14,000 per month?   If the answer to both of these questions is no then the nursing home will just send the bills to Medicaid! And regardless of your payment method they are required by law to treat all patients with the same level of care. So you must be asking yourself, “How does one get to answer NO to both of these questions while staying 100% legal and above board if one potentially has a home, a business, and/or savings?” It is actually really simple.   Let’s back up a minute. So if you have assets in your name at any point during the last 5 years, you are required to use them to pay for your own care. Not all assets are created equally however; some assets are “counted” and some are “not counted” in the calculation. The assets that you need to spend-down for your own care before medicaid takes over payments include the following:   Home If you are married, they won’t force you to sell it right away, but rather will put a lien on it so when it is eventually sold, they will get their money Rental Properties Cash in your bank account Stocks, Bonds, CD’s, other investments Family Business (LLC, S-Corp, C-Corp) Assets not required to use for nursing home care before Medicaid helps:   Car in the patient’s name (there is no established limit on the value) Prepaid Funeral expense Medicaid-Approved Annuity (This means that the state is the first beneficiary of the annuity – only to be used for emergency cases) So if you do not legally own the assets described above during the previous 5 years, you qualify for Medicaid to pay for your care. You may have previously lived in a $1M house and drive a $100K Mercedes, but if the title does not have your name on it, it is not counted as assets available for your care!   The Catch and the Better Alternative to Long Term Care Insurance   The first catch is that you need to act immediately – more specifically, you need to act at least 5 years before you need to go into a long term care facility. Since nobody knows when their health is going to take a turn for the worst, you need to act pronto.   Catch number two is that you must be willing to reposition assets into an irrevocable trust for the benefit of your kids or someone else. A living trust or a revocable trust will not suffice. Here is the difference between revocable and irrevocable trusts.

A captive insurance company, often referred to as a “captive”, is a risk transfer entity and an alternative to the traditional commercial insurance and reinsurance markets. A captive is a privately held insurance company that is usually a subsidiary of the insured business. It issues policies, collects premiums and pays claims, just like a commercial insurer. The major difference, however, is that it does not offer its services to the public. An 831(b) captive benefits from the preferred tax treatment afforded to small insurance companies by the IRS. 831(b) captives can record up to $1.2 million a year in premiums without any federal income tax implications. Premiums are deducted from a business’ ordinary income and a captive’s profits can be distributed to shareholders at long term capital gain rates.   Captives were once considered too outside the mainstream of risk management practices. However, within the past decade or so, most major corporations have either utilized captives or actively considered the feasibility of captives. Captives are now truly considered a mainstream and cost effective risk management alternative. It is estimated that between 75-85% of S&P 500 companies use captive insurance for risk transfer purposes.   Businesses often find themselves with a need for comprehensive risk management. By establishing a captive insurance company, business owners can craft insurance coverage that addresses their particular needs. The ability to be creative and task specific is a tremendous advantage of captive insurance company ownership. Additionally, using the captive structure companies can create employee retention and executive compensation benefits.   Further, captives can provide significant estate planning benefits. In many scenarios the parties that own the captive also own the business that is insured. In some instances it makes sense for the children of the owners of the business to own the captive. The captive can also be owned by a trust structure, effectively removing the profits and assets of the captive from the estate of the business owner. This can only be accomplished if the captive meets the requirements of the Internal Revenue Code’s section 831(b).   Captives have also demonstrated the ability to provide important asset protection benefits. In particular, if the captive is formed offshore and chooses to make an IRC 953(d) election, thus treating the captive as a domestic corporation, the captive will be able to transfer assets to offshore banks or investment vehicles. There are requirements that disclosures are made about foreign bank accounts. The real advantage comes when dealing with creditors. Creditors would be obligated to pursue their claims in these foreign jurisdictions.   Another advantage is the anonymity that captive ownership provides. Information regarding the ownership of a captive is often protected by the jurisdictions that allow captives. Therefore, ownership information is not readily available to third parties.   Additional protection can be obtained by forming the captive as a Limited Liability Company. Captives can benefit from the LLC structure; this provides an added layer of protection for the owners, who are able to restrict their personal liability.   Our team of advisors has a unique blend of over 100 years of combined experience in the insurance and financial service industries. By combining our extensive experience and knowledge of financial services and insurance we are able to design and implement insurance solutions tailored to fit our client’s insurance needs. We offer comprehensive captive consulting services to wealthy individuals and business owners seeking innovative tax minimization and wealth preservation strategies.