Another protection for an IRA can be provided by a life insurance contract with a long-term care rider. The rider provides flexibility in paying monthly expenses using the death benefit of the policy. It also allows the insured to extend the benefits for a significant period of time, up to the policy limits. Depending on the insured’s age and company used, a life insurance policy could be purchased with $500,000 of death benefit and an LTC rider that could be twice the death benefit (200%).
Example: John buys a life insurance policy with a $500,000 death benefit and an LTC rider. The rider pays out a maximum of actual expenses each month or 2% of the death benefit ($10,000) if monthly expenses exceed $10,000. The LTC rider is set at 200% of the death benefit ($1,000,000). Payments received for LTC expenses would be income tax free. If John died after receiving a portion of the LTC benefits, the balance would be paid as a death benefit to his named beneficiary or his estate. Up to $500,000 of combined LTC / death benefit would be paid. If John exceeds $500,000 in LTC expenses, then only LTC benefits continue to pay out, up to $1,000,000, during John’s life.
