Sometimes you have to be creative. If a client wants long-term care coverage but doesn’t like the “use-it-or-lose-it” nature of traditional LTCi, try offering them agreeable, non-traditional forms of LTCi protection!
According to LongTermCare.gov, “Someone turning age 65 today has almost a 70% chance of needing some type of long-term care services and supports in their remaining years.” Today, LTC services can cost tens of thousands of dollars a year, depending on the type of service. And, going without some form of financial protection is not a risk many feel comfortable taking. However, that’s not to say everyone looking for some sort of coverage is comfortable with buying traditional LTCi.
There are four types of products that make great alternatives to traditional LTCi. Here’s a closer look at them and what they entail.
1. Annuity/LTCi Combination Products
Annuity/LTCi combination products are a form of asset-based LTCi made up of a base annuity contract and a built-in accelerated LTC benefit rider. This rider basically allows the annuitant to use their policy’s accumulated value to pay for qualifying LTC expenses in their home or at a care facility. Any gains that go toward paying for LTC do so tax-free!
If LTC isn’t needed, the annuitant can leave the money in their account to a designated beneficiary. If the annuitant doesn’t use all of the annuity’s value to pay for LTC, they can pass any unused funds to a designated beneficiary as well.
Annuity/LTCi combination products are often designed as fixed or indexed annuities and can be immediate or deferred. Clients can also have a multiplier built into the policy to give them a larger LTC benefit than their investment.
What else should you know about these products?
- Single-premium products that can be funded with existing assets (e.g., CD, savings, other annuities)
- The annuitant can surrender the plan but would likely have to pay surrender charges
- Require minimal underwriting, which is often streamlined and less stringent than underwriting for traditional LTCi
- One policy may be able to cover two lives (e.g., husband and wife) — depends on the carrier, plan, and state
- Inflation protection rider not available
- Clients can add a continuation of benefits rider to the policy, which allows the LTC benefit to continue for a certain period of time once the annuity value is exhausted
- Agents can turn a client’s existing life policy or annuity into an annuity/LTCi combination policy using a 1035 exchange
2. Life/LTCi Combination Products
Life/LTCi combination products, which are also a form of asset-based LTCi, consist of a life insurance policy with a built-in acceleration of death benefit rider. Generally speaking, this rider allows policy owners to use all of their death benefit to pay for qualifying LTC expenses tax-free in their home or at a care facility.
If the policy owner doesn’t need LTC, their heirs can still receive the death benefit tax-free. Further, if the policy owner only uses part of the death benefit for LTC, their heirs can still receive what remains of it tax-free. (continued on page 2)
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