Long-term care insurance is not a “one size fits all” risk management strategy. It is highly customized. At Gurley LTCI we review four key factors with clients as each factor plays a part in determining the best funding strategy for a specific client. These include:
Health – Long-term care insurance is medically underwritten. Health history will determine insurability and point to carrier(s), product(s) and ultimately determine the cost of the insurance.
Wealth/Income – Long-term care insurance protects assets and income. We want to understand the assets to be protected as well as overall income to determine a comfortably affordable premium.
Asset Location – Provisions of the Pension Protection Act allow for tax-advantaged funding of long-term care insurance policies. We want to know if clients have cash value in life insurance or annuities as this may be a very attractive way to fund a policy.
Financial Goals – As we customize coverage it is important for us to know if clients want to preserve assets to transfer wealth to the next generation or simply want to be sure they can afford quality care.
For clients who are insurable there are three long-term care insurance products in the market today: traditional pool-of-funds, life insurance based and annuity based. They all come with a number of options and varying contract provisions.
Standalone or pool-of-funds design – These products comprise less than 20% of the policies sold today. Think of this standalone product like you do your auto insurance. You figure out the amount of coverage you need, what your deductible will be, you pay your premiums and hope that you are never in a crash. The pool-of-funds are similar in design in that you figure out the coverage, the elimination period which is the equivalent of a deductible, pay premiums and hope that you never need care.
These products are the most customizable, have the strictest underwriting guidelines and will be the least costly insurance solution if you end up needing care. Today, almost all of these designs are tax-qualified which means that benefits paid are tax-free and premiums may be deductible depending how you file taxes. These are also the partnership products that provide additional protection of assets from Medicaid resource reduction requirements. These products are generally available for those between the ages of 18 and 79.
Life insurance designs – These products are designed on a permanent life insurance chassis with long-term care riders. Some simply allow for a percentage of the death benefit to be paid monthly to cover long-term care expenses. Others add a long-term care rider to the life insurance contract. And still others link life insurance to a continuation of benefits rider that is integral to the product design.
The majority of these products are designed to leverage the premium two or three times creating a pool of money that can be used for care needs. With the life insurance based product, if you die never having needed long-term care, you get your money back in a death benefit. There is an interest rate applied to the premium paid and most designs have a lifetime guaranteed return of premium. If you quit the policy, you get your premium back or premium plus interest whichever is greater. Underwriting on these products is generally more lenient than the traditional designs. These products are available to those ages 18 through 80 depending on the carrier.
Annuity designs — The annuity products are structured differently. Most require a significant single premium to create a meaningful monthly long-term care benefit. Some simply pay interest on the premium paid and others leverage the premium two times or more creating a pool of money for care needs. These products are also designed with a crediting interest rate on the premium paid. If you die never having needed care, the cash value in the policy is paid to your beneficiary or estate. These products also have a surrender or penalty period if you quit the policy within a certain number of years. Underwriting is lenient. These products are available between the ages of 40 through 85.
Not everyone who wants long-term care insurance can qualify for it. When this is the case we assist clients with alternate funding strategies.
Home care membership service – This is not insurance. It is not medically underwritten. The applicant just cannot be receiving home care at the time of application. The membership service provides deeply discounted home care. Members can use nationally recognized home care companies or designate their own caregiver. There are no triggers to eligibility and applicants may apply through age 99.
Long-term care benefit plan – Converting an in-force life insurance policy to a long-term care benefit account is another option. The life insurance can be of any type including term, group or permanent. This involves selling the life insurance at fair market value through a life settlement transaction and depositing the proceeds into an irrevocable, FDIC-insured Long-Term Care Benefit Plan that is professionally administered with tax-free payments made monthly on behalf of the individual receiving care. There is no age requirement, waiting period, care limitations, cost to apply, requirement to be terminally ill and no premiums. This is a strategy for clients who are already receiving care or will need care within about 90 days.
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