Select Life Insurance Policies Now Offer Long-Term Care Benefits
The Pension Protection Act (PPA) of 2006 provides new tax benefits for certain life insurance policies. These new benefits apply to policies issued in 1997 (or later) with the benefits starting in 2010 (or later).
- Why Would I Be Interested In A Life-LTC Combo Product?
- As An Employer, Why Would I Offer This Protection To My Employees?
- How Do Combo-Life-LTC Policies Work?
- Can You Share 2 Common Examples - Cost and Coverage
- Tell Me More About Policy Features
- Are There Health Qualifications?
- What Is the Best Age To Look Into This Protection?
- How Do These Policies Pay Long-Term Care Benefits?
- What Are Some Disadvantages That Might Make Traditional LTCi Better?
- How Can I Get More Information Or Find Policy Costs?
Why Would I Be Interested In A Life-LTC Combo Product?
The primary advantage of the life insurance combination product is that the buyer will get some benefit from their premiums even if he or she does not eventually need long-term care.
Simply stated, you have a win-win situation. Either you use (some or all) of the long-term care benefit or someone receives a life insurance payment. Of course, this assumes you do have some need or desire for life insurance protection.
The "what if I never need long-term care?" concern is one of the major reasons people don't protect themselves and their loved ones against the potential risk of needing this care and the enormous cost (both financial and emotional on your family and loved ones) that occurs when the care is needed. So, if that is a reason that's been holding you back from looking into protection, you no longer have an excuse ... at least not that one!
As An Employer, Why Would I Offer This Protection To My Employees?
Info to come from Colonial Life, one of the leading providers of life insurance+LTC combination products offered through the workplace.
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How Do Life-LTC Combo Products Work?
There are two basic types of Life+LTC products available today. About 30 or so insurers offer these types of products so, as with all financial and insurance policies, it pays to work with a knowledgeable professional who has access to multiple companies. You can see leading insurers and their ratings on our Website under the "Top LTC Insurers" banner.
The second type adds an optional rider to the policy. You are buying a base policy of permanent life insurance and the option to receive long-term care benefits is provided through an optional rider added to the policy. Many of these policies are sold on a recurring premium basis.
Can You Share 2 Common Examples - Cost And Coverage
Jim is 60 years old and in good health. He has retirement investments of $400,000 that he plans to leave to his three adult children. Jim purchases a Life+LTC policy for himself that provides $200,000 in life insurance protection (payable to his children). He adds an extension of benefits rider so that the long-term care benefit can be up to $400,000 (roughly 5 years of a $6,000 per-month benefit). Jim elects the Return of Premium Option (he can cancel at anytime and get his premium payment back). Jim can expect to make a one-time payment (from his savings) of between $xx,xxx and $xx,xxx for this protection.
Mindy works for an employer who offers a voluntary Life+LTC benefit through her company. (Colonial to help here).
Tell Me More About Policy Features
Common Life+LTC Product Features
Both type of Life+LTC products accelerate the life insurance policy's death benefit to cover qualifying long-term care expenses (typically after an Elimination Period of 90 or 100 days). The policy may offer the ability to elect an extension of benefits option (for added cost). This extends the long-term care coverage up to several times the life insurance death benefit (for example: the option could extend a $100,000 death benefit so that you might receive up to $200,000 in long-term care benefits.
Long-Term Care Benefit Payments: Reimbursement or Indemnity
There are different formulas by which insurance companies pay for qualifying claims, Reimbursement plans reimburse actual expenses (qualifying is always an important factor) up to the policy's maximum (generally monthly). These tend to be less expensive to buy simply because not everybody on claim reaches their maximum limit each month. The other approach is an indemnity plan that pays the monthly maximum benefit each month as long as the policyholder supplies evidence that covered expenses have been incurred. Plans with this benefit payment structure tend to have higher claim levels but the paperwork is easier. The professional you work with can explain the pros and cons of each approach.
Benefit Amounts
The policyholder elects a desired total long-term care available fund along with a period of time over which the fund will be paid out. The common choices are 24, 36 or 48 months. But 60-months (5 years) or lifetime benefits are also available. Note: The amount of benefit provided needs to fall within the current IRS-defined maximum daily benefit limit in order to maintain the tax-qualified status of the long-term care benefit.
Return Of Premium Option
This is an important feature used to market Life+LTC products. This option allows for a full refund of the premium deposited at any time. If you request this return of premium, your policy is terminated.
Residual Death Benefit
This features provides that if the long-term care coverage is not used, the full life insurance death benefit is available. Some policies will provide a minimal residual death benefit to cover final expenses (funeral, etc.) typically equal to the lesser of 10 percent of the initial death benefit or $25,000.
Benefit Triggers
These are the same as tax-qualified long-term care insurance policies. You must meet the criteria of being unable to perform two out of six defined Activities of Daily Living (bathing, continence, dressing, eating, toileting and transferring) or have a severe cognitive impairment (such as Alzheimer's Disease).
Elimination Period For Long-Term Care Benefits
As with traditional long-term care insurance policies Life+LTC combo policies have an Elimination Period (EP). Unlike traditional LTC insurance where you chose the EP (30, 60, 90 or 100 days are typical options), Life+LTC plans generally set the time at 90 days. This is the number of days you must be receiving qualifying care before you become eligible for the long-term care benefits under your policy.
Inflation Protection
Many of the Life+LTC policies offer an Inflation protection option (additional cost). Many insurers note that this option is rarely taken because most buyers tend to be older and the added cost can be high.
Are There Health Qualifications?
Yes In addition to life insurance underwriting insurance companies will generally apply very similar health standards as used for traditional long-term care insurance protection. As a result, it is important that you apply for this protection while you are still in relatively good health.
If you have some existing health conditions, you should speak with a knowledgeable long-term care insurance professional who can share information and provide advice. Insurer sometimes order an APS (Attending Physician's Statement) or have other requirements. For older individuals, they may conduct cognitive assessments including conducting a phone or in-person interview.
What Is The Best Age To Look At These Policies?
As just stated above, your health is the most important factor whether you are looking at a Life+LTC policy or traditional long-term care insurance. As a result, there is no perfect answer to this question. We can say this; you know your health better than anyone -- even your own doctor.
Don't wait to start planning. Our health can change from day-to-day, once most of us pass the age of 50 that becomes clearly evident. And, it rarely improves after we reach that milestone. Your next visit to the doctor's office could result in your inability to get any type of long-term care protection ... no matter how much you would be willing to pay.
How Do These Policies Pay Long-Term Care Benefits?
As noted earlier, there are different formulas by which insurance companies pay for qualifying claims, Reimbursement plans reimburse actual expenses (qualifying is always an important factor) up to the policy's maximum (generally monthly). These tend to be less expensive to buy simply because not everybody on claim reaches their maximum limit each month. The claims submission process tends to be more complicated.
.The other approach is an indemnity plan that pays the monthly maximum benefit each month as long as the policyholder supplies evidence that covered expenses have been incurred. Plans with this benefit payment structure tend to have higher claim levels but the paperwork is easier. The professional you work with can explain the pros and cons of each approach.
What Are Some Disadvantages That Might Make Traditional LTCi Better?
Well, the obvious one is you have no need for life insurance. Thus you would be buying something you have no need for.
You might not have sufficient cash available to purchase a single premium policy that costs $50,000 or more (the average size for a single premium sale is about $65,000).
How Can I Get More Information Or Find Policy Costs?
For Individuals
To obtain information on asset-based long-term care insurance for yourself or your business connect with one of our members using our Find A Local LTC Professional online look-up or click here to complete our simple online questionnaire.
For Employers
If you are interested in offering your employees Life+LTC protection either on a voluntary (employees-pay-all costs) or on a fully or partially-paid basis, we ask you to call the Association offices at (818) 597-3227. We currently do not have an online ability to connect you with a worksite specialist. Ask to speak directly to Jesse Slome, Executive Director, and we will gladly connect you with an appropriate person.
