The Benefits of Joining the State’s Long Term Care Partnership

Long term care is a difficult subject for the aging American population. As life expectancy rises, retired individuals are concerned not only about maintaining a comfortable lifestyle on their retirement savings but also worried about the eventual need for quality long term care and its associated costs. One way to plan for long term care is through the state’s long term care partnership.

What Does Long Term Care Partnership Mean?

Long term care partnership is short for the Qualified State Long Term Care Partnership program created by the Federal Deficit Reduction Act of 2005 (DRA). Originally established as a pilot program in California, Connecticut, Indiana and New York, the program now is available in 29 states, including Oklahoma, Missouri and Kansas.

This program is aimed at middle income Americans who do not have sufficient assets to afford long term care should they need it or to pay high premiums for individual long term care policies. Typically these individuals have too many assets to qualify for Medicaid assistance in their time of need.

Individuals who live in states that participate in the program can purchase long term care insurance through independent companies affiliated with the state in providing this specialized coverage.

How Does It Work?

While each state has implemented its own long term care partnership plan, in general individuals pay monthly premiums for a certain amount of long term care insurance, such as $100,000 or $150,000 coverage. In exchange for providing for their own health care, individuals are rewarded by receiving improved eligibility for Medicaid coverage if and when the long term care insurance benefits are exhausted.

Meanwhile, individuals who participate in the program may be able to deduct the long term care premiums as an itemized deduction on federal income taxes.

Participation in a long term care partnership insurance plan typically is recommended for women in their early to mid 60s.

Jerry Shiles
Attorney at Law

Parman & Easterday are members of the American Academy of Estate Planning Attorneys.

Selecting the right type of life insurance can be a daunting task because there are so many different policies available to consumers. The most appropriate type of life insurance policy for individuals will depend greatly upon their ages and family status. One common misconception dating back to the days when women typically were not in the workforce as they are today is that women do not need life insurance. Working women of all ages should carry life insurance to protect their families or as an investment for their future.

Term Life Insurance

Term life insurance is perhaps the easiest to understand because it functions somewhat like home or auto insurance. With term life insurance, individuals pay premiums and the named beneficiaries collect the face value of the policies if the insured individual dies during the term. For example, with a 20-year term life insurance policy for a face value (amount of insurance) of $100,000, the owner pays regular premiums and the beneficiaries receive $100,000 should the owner die while the policy is still in force (active).

Term life insurance is typically inexpensive and is an excellent choice for young families because it is affordable. Term life insurance can provide much needed cash should one or both parents die. One thing to remember is that term insurance becomes more expensive as you get older. So, renewing a term policy at some point may become cost prohibitive.

Whole Life Insurance

Whole life insurance policies pay a death benefit just like term life insurance; however, whole life insurance also accumulates cash value. Cash value is similar to interest earned on a savings account. While whole life insurance typically has higher premiums than term insurance, owners of whole life policies are building some savings into their financial plan.

Whole life insurance is just that; unlike term insurance which covers a fixed period of time, an owner can keep a whole life policy for an entire lifetime. A whole life policy is one way to leave financial assets to beneficiaries.

With a whole life policy, the cash value accumulating inside the policy is the company’s hedge against a higher mortality expense as you age. This is why the company will continue coverage until your death without increasing renewal costs during your lifetime. In a whole life policy, the cash value earns a guaranteed rate of return.

Universal Life Insurance

Like whole life, a universal life insurance policy pays a death benefit. It also accumulates cash value and tax deferral on the build-up of the cash value. And, like whole life, the insurance companies allow owners to borrow against the cash value of a universal life policy. One big difference is that the interest rate applied to the cash value account is not guaranteed by the company. It is based on market conditions and that risk is borne by the policy owner. If the policy underperforms it is possible that premiums could be increased in order to keep the policy in force.

Larry Parman
Attorney at Law

Parman & Easterday are members of the American Academy of Estate Planning Attorneys.

Probate is a legal process that allows the court to ensure all your assets are distributed to the appropriate heirs.

This can be in accordance with the terms of your Will or, if there is no Will, in accordance with the state’s intestacy laws.

But there are some assets, like life insurance, that don’t require probate to be distributed to your heirs. This is because your beneficiary is designated in the policy document itself so it doesn’t need a court to decide how to distribute the proceeds.

But that doesn’t mean that your life insurance policy is exempt from probate – it’s not.

Many people make the mistake of naming their “estate” as the primary beneficiary to the policy. And if the estate inherits your policy proceeds, then those funds will go through probate just like all your other assets.

In addition, part of the probate process is to determine how much, if any, estate taxes are owed. To do this, the court needs to have an accurate value of your estate and your insurance policies are included in that value.

The only time this doesn’t hold true is if you are not the owner of the policy.

Of course, there are ways to exclude your life insurance from both probate and estate taxes, one of which is an Irrevocable Life Insurance Trust (ILIT).

To learn more about this important strategy of avoiding probate and minimizing estate taxes on your life insurance, contact our office today.

Larry Parman
Attorney at Law

Parman & Easterday are members of the American Academy of Estate Planning Attorneys.