You Might Already Own Your LTC Answer

By Yvonne Marsh, CFP®, CPA

Are you paying for a life insurance policy you don’t need anymore? Or perhaps you have money in a variable annuity, but you aren’t sure what to do with it? Well, good news on both fronts! You can use a friendly little IRS rule, called a 1035 exchange, that allows you to trade a current life insurance or annuity policy for something new and not pay any tax on it.

My favorite strategy is to exchange them for an asset-based long-term care policy. This is not your typical traditional LTC policy, with all of its inherent drawbacks. This is a policy you fund once, with the 1035 exchange, and there are no further premium payments. It provides you with an enhanced pool of tax-free LTC dollars that you can use for home health care, assisted living, or full skilled care. If you don’t ever need it for LTC costs, it has a death benefit that passes to your heirs. It solves the “use it or lose it” premium payment of traditional LTC insurance.

This exchange process has lots of tax advantages. Normally, the cash value of a life insurance policy and the accumulation value of an annuity has interest that is taxable if you take it out. But when you exchange it for an asset-based LTC policy, the LTC benefits are tax-free and the death benefit is tax-free. Voila! No more taxable interest! Note this strategy does not apply to term insurance, which has no cash value. You can also purchase this type of policy with non-retirement money or even over a period of time.

Beyond the tax benefits, an asset-based LTC policy truly solves retirees’ most vexing dilemma: how to provide themselves protection from the financial catastrophe of health care costs. A 2018 Genworth study found, in Knox County, the average monthly cost of home health care is $3,575, assisted living is $4,000, and full skilled care is $7,000. You can’t just wish for good health – if you don’t have adequate protection, these costs will drain your accounts, or fall to your adult children to pay or you’ll end up on Medicaid letting the government decide for you.

Call or email to learn more. We’ll be happy to provide you with the information you need to make an informed decision. Peace of mind is priceless.


Financial Planning & Investment Advisory Services are offered through Marsh Wealth Management, LLC (“MWM”), an independent investment advisor registered with the state of Tennessee. Yvonne Marsh is an Investment Advisor Representative of MWM in the state of Tennessee. Marsh Professional Group, LLC, is a TN registered public accounting firm and a separate legal entity from MWM. For a detailed discussion of MWM and their investment advisory fees, see the firm’s Form ADV on file with the SEC at