Insurance strategies

New Long Term Care Insurance Strategies and Benefits

Long-term care insurance may be old-fashioned, but long-term care cover? This is an other story.

While sales of traditional LTC policies have fallen sharply in recent years, life insurance policies and annuities with SLD benefits are growing in popularity.

“A lot of people don’t want to use the traditional SLD approach,” says Randy Becker, a planner and owner of Becker Retirement Group in Bellevue, Washington. “They worry about rising premiums, the risk of a business going bankrupt, or the possibility of not needing care…all of this at a time when they will have limited resources.”

“A lot of people don’t want to use the traditional SLD approach.” — Randy Becker, Becker Retirement Group.

Sales of new stand-alone individual LTC policies fell to 91,000 in 2016 from 372,000 in 2004, according to LIMRA. During the same period, new premium dollars fell to $228 million from $716 million. From 2012 to 2016, the decline in both categories was particularly strong: more than 65%. And in the first half of 2017, only 34,000 Americans purchased new LTCI policies, down 30% from the first half of 2016.

Instead, Americans are turning to hybrid or “combined” life insurance that can also pay for lifetime care. To a lesser extent, they also purchase annuities that provide large payments, if needed, for long-term care. New premiums for combined life and long-term care insurance reached $3.6 billion last year, up from $2.4 billion in 2012, according to LIMRA; annuity-LTC hybrids more than doubled their sales, from $210 million to $480 million.

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Why the LTC combo rush? “Some clients are concerned about paying for stand-alone LTC insurance and not using it,” says Herb Daroff, an advisor at Baystate Financial Planning in Boston. “People don’t expect to get sick to use their health insurance, but LTC insurance has high premiums and the concern exists.”

As LTC insurance premiums have risen, many people are reluctant to pay thousands of dollars, year after year, for coverage that might yield no benefit. “There’s absolutely no acceptance of traditional long-term care insurance,” says Jeannette Bajalia, president and senior consultant at Petros Estate & Retirement Planning in Jacksonville, Florida. “The lifetime premium is not predictable and the cost may not be affordable.”

Jaime Cowper, president of Unity Financial Advisors at Bingham Farms, Michigan, reports that she has begun to recommend life-LTC and annuity-LTC combinations to clients more often than she does traditional LTC insurance.

“The main reasons are that asset protection products”, – its name for hybrid life insurance policies and annuities – “have guaranteed premiums, provide benefits for life and provide cash to beneficiaries if a customer never needs LTC,” she says. “While a traditional policy may initially be somewhat cheaper than asset management products, there is no guarantee that the premium will not increase in the future and become significantly more expensive,” she adds. . “That, combined with the option of lifetime benefits and the ability to raise money for beneficiaries if clients never need it, has made asset management very attractive.”

Similarly, Becker refers to the LTC hybrids he uses as “asset-based SLDs.” Most of his clients, he says, are happy with this approach. “They actually put the money where it will do its job, if needed for LTC,” he says. “However, the death benefit will ‘bring those assets home’ if the LTC portion is not needed.”

Becker says a key feature of the products he selects is a premium return feature. If customers’ circumstances change and they need money, they can get a refund.

“For example,” he says, “a 56-year-old client was recently approved for a single premium life insurance policy with an LTC benefit. For a premium of $75,000, the initial death benefit is $120,000, dropping to around $106,000 at age 90.

This client’s LTC benefit starts at about $230,000 (about $4,400 per month), rising to $484,000 (about $9,800 per month) at age 80. receive nothing less than the one-time bonus of $75,000,” says Becker. “These asset-based LTC products can be flexible, with the insurer setting up a simple grid that allows the advisor and client to choose the number of benefit years, inflation or not, and compound or simple growth. .”

Any LTC benefits from such a product will be tax-exempt under IRS guidelines for a tax-eligible LTC plan, Becker says. (Life insurance death benefits are generally not taxed either.) While premiums paid for standalone LTC insurance may be tax deductible, premiums paid for hybrid LTCs are not tax deductible.

Nonetheless, any LTC benefits paid by a hybrid product will likely be tax exempt if the contract is structured to reimburse the individual. “This may be true for qualified LTC expenses,” says Daroff, “provided by licensed child care providers.”

Daroff adds that hybrid LTC benefits under the indemnity model (in which insurance payments are a fixed amount) can also be untaxed. These policies typically pay a full daily or monthly benefit amount directly to the policyholder, if specified conditions are met. Benefits received from an indemnity policy may be tax-exempt up to the highest actual qualified long-term care expense or a daily allowance limit ($360 per day in 2017) .

Some aspects of LTC hybrids are relatively straightforward, Daroff says. Buyers of a life insurance-LTC combo, for example, could use up to 90% of the death benefit over their lifetime for qualified care expenses. “A customer who purchases coverage for $500,000 may be able to use up to $450,000 for LTC,” he says. “Then the beneficiary would receive $50,000 upon death. If only $150,000 is used during the lifetime of the insured, the beneficiary would receive $350,000.


But some of the finer points of these hybrids have to be carefully negotiated. Whether a hybrid is a whole life policy or a universal life policy, for example, can have a significant financial impact. “With universal life,” says Daroff, “the death benefit doesn’t increase, so LTC benefits don’t keep pace with rising child care costs. With whole life insurance, dividends can increase the cash value and death benefit. If the death benefit increases, the amount available for long-term care may also increase. »

Henry Montag, CFP, financial adviser in Uniondale, New York, warns of another potential pitfall in these hybrids. “Some have SLD rider,” he said. “It acts like a traditional LTC contract, with buyers paying for the rider upfront. These products tend to be relatively liberal in terms of when they will pay benefits. »

Other hybrids, however, come with a chronic care jumper. “These tend to be more restrictive in their definition of what qualifies for a claim,” says Montag. “The buyer does not pay the rider in advance. Instead, there are ongoing interest charges when the benefit is actually used. Essentially, he explains, policyholders are borrowing to pay for qualifying care, but loan amounts can be greater than would be available with loans up to the cash value of the policy.

Among annuity-SLD combos, “doublers” are gaining ground. With these annuities, Bajalia says, if a person is deemed to be in need of long-term care, the income they receive will double for up to five years. Some annuities continue to double even if the cash value of the contract is zero, says Bajalia, who cautions that advisors need to fully understand how these contracts work in various scenarios.

Despite all the variations in LTC hybrids, advisors report that clients get the message: they’re buying life insurance or an annuity as well as long-term care coverage, should the need arise.

“Generally, I think my customers have found these types of products relatively easy to understand.” –Jaime Cowper, Unity Financial Advisors.

“Generally, I think my clients have found these types of products relatively easy to understand,” says Cowper. Becker agrees: “With the LTC hybrid,” he says, “I really have no trouble explaining the products. I find it easier to explain combination products than traditional long term care insurance. »

Which customers are likely to be interested in LTC combos? Bajalia points the finger at single, divorced or widowed women who do not want to be a burden on their children. “Customers interested in these products also include those who have been caregivers to their parents or spouses, as well as those who have seen friends and family members financially devastated by the cost of long stays in nursing homes” , she says. “Leaving a legacy to loved ones can also be a reason to buy.”

Bajalia cites the example of a 69-year-old, now single, client of hers whose main goal is to leave a legacy for her daughter. “We determined that the best approach to achieve her goals was flexible premium life insurance with a single premium of $150,000 for a total long-term care benefit of $451,000,” she says. “If death occurs before the need for long-term care, a death benefit will be paid to the beneficiary. This solution, coupled with a fixed annuity with a voice actor, helped the client protect herself and her daughter’s legacy.

Of course, LTC hybrids are not without flaws. As mentioned, premiums are not tax deductible. Combination products often require a large initial outlay. Additionally, advisors may question the idea that clients should purchase life insurance or an annuity if they do not have a real need or desire for such a product.

“We reviewed the combined policies, but did not recommend any,” says Dave Yeske, chief executive of Yeske Buie, a financial planning firm with offices in San Francisco and Vienna, Virginia. “It looks like they might suit someone who has a cash value policy that we want to convert. Also, in situations where someone may not be medically eligible for single LTCs, it is my understanding that combination policies are more liberal underwriting.

Without such customer situations, Yeske’s business stuck with traditional LTC policies, for customers with this need. “We try to direct them to companies that seem to have a long-term commitment to this product,” Yeske says.