The pandemic has put a great many things in perspective for a great many people. Long-term care (LTC) and its myriad benefits are chief among them.
While there is truly no way of determining if you will eventually need LTC coverage, protecting one’s self – and one’s family – from the possibility of tremendous financial drain, remains critical.
Now is the time for everyone to plan in multiple directions. Intergenerational long-term care planning – or establishing long-term care as a legacy – is just one way in which families can work to protect their futures from the unforeseen. Possibilities are numerous, from children establishing the necessary safeguards for their aging parents to parents purchasing life insurance with an LTC component, in the hopes of leaving a financial legacy for their children and grandchildren.
A number of hybrid products exist today that can help clients to achieve these goals, including linked benefits or life insurance policies with an LTC rider. The ideal product for your clients largely depends on a number of qualifying factors – from budget to assets to financial benefits – and ultimately will be determined on a case-by-case-basis.
- Linked Benefit Plans – also known as asset-based plans – combine cash, long-term care, and death benefits into one package, while placing an emphasis on LTC.
Policyholders pay one lump sum premium, or several significant annual premiums, and the policy yields a death benefit in addition to a pool of money to be used for long-term care, which can often balloon to be several times the amount of the premium.
Offered by a number of companies, including Lincoln Financial, One America, and Nationwide, these asset-based hybrids are typically funded by reallocating rainy day savings. Not only do they provide tax-free funds for qualifying LTC expenses, but if such benefits are not fully utilized, the policy’s beneficiaries may receive a death benefit tax free.
Many asset-based plans also offer an appealing Return of Premium benefit, which allows policy owners to recoup all or a portion of their premiums paid if they happen to have a change of heart.
- Life insurance with a Long-Term Care or Chronic Illness rider allows policy owners to tap into a death benefit while they are still living to use for long-term care needs. For each dollar of the LTC benefit used, the death benefit is reduced in kind. The balance of the death benefit, if any, is then paid to beneficiaries in the event of the policyholder’s death. These riders are purchased in conjunction with the life insurance policy and are triggered when chronic illness makes self-care impossible. A licensed medical professional must also certify that the illness prohibits at least two of six activities of daily living (ADL), which can include eating, bathing, personal hygiene, dressing, and more.
Many insurers include accelerated death benefit riders as part of their life insurance policies. In most cases, however, a terminal illness is required to trigger the benefit, along with a life expectancy of two years or less.
- LTCi – or what is considered traditional long-term care – may also be a viable product given certain circumstances. While hybrid products may initially seem to offer a better value – and remedy the “use it or lose it” nature of stand-alone products – many agencies continue to sell LTCi thanks to the versatility and customizability regarding benefit period, amount, and more. Such products may be ideal for individuals without heirs who are not concerned with funding a death benefit. Consult with an advisor to help you determine the efficacy of stand-alone products for your clients.
Be sure to look at the big picture with your clients to find the best solution for their unique circumstances. Belman Klein Associates helps with the approach to long term care as a legacy, the ensuing conversation, and the solution.