Interest on Savings Method to Pay Your LTC Premiums

As you can imagine long term care insurance is not a cheap insurance to pay for.  A common question we get is how can I afford to pay the premiums?  First of all, long term care insurance is not for everyone; the insurance is mainly for people who have 200K+ in liquid savings (excluding your home).  The main goal when buying long term care insurance must be to buy an amount of coverage that will be affordable for you during your retirement years and a common method we use to help our clients plan is the Interest on Savings Method.  This method can best be explained by giving an example:

Say you have a portfolio of $500,000 consisting of $250,000 in stocks $150,000 in bonds and $100,000 in a CD earning 4%.  A way to protect the entire portfolio from the potential high cost of long term care insurance is to use a portion of the interest on that 100k CD to pay your long term care insurance premium.  At 4% on $100,000 that would obviously give you $4,000/yr.  Simply take a portion of the interest (the remaining interest stays in the investment and continues to grow) which will fund your long term care insurance and what that move does is it creates a pool of money or separate LTC account filled with about 600K of money you could use on a long term care need for either you or your spouse. 

So now, you still have your $500,000 portfolio PLUS an additional $600,000 in long term care insurance to pay for you and your spouse's future LTC needs.  If either you or your spouse needs LTC in the future the money will not have to come-out of your IRA, but uncle ABC-Blue-Chip Insurance company's pocket.  By using a portion of the interest from just that one investment you protect your whole portfolio that you've worked so hard to build up.