Ask The Expert
By: Sue Croft
April 1, 2013 –
Sue Croft – Owner and Financial Consultant
Q: Are products available for long- term care protection where the premiums do not increase?
A: Yes. Life LTCI and Annuity LTCI. These are investments for LTC whereby one is not spending money on premiums and never using the care. A sensible strategy as 70% will need some form of LTC after age 65; average time for women is 3.7 years—2.2 years for men; 20% will need LTC less than 5 years. Any unused funds will be paid to the beneficiaries income tax free.
What is the difference? Life LTCI can cover one or two lives. The death benefit is paid out in benefits versus cash value with regular life insurance. A Rider can be purchased to extend the time of coverage. A Life LTC policy can be placed in a Life Insurance Trust for estate planning. The premium can be paid with Tax Qualified and Non-Qualified funds. It can be funded monthly, annually or with a lump-sum.
By definition, Life LTCI is a tax-qualified plan. Tax Qualified means certain conditions must be met before benefits are paid, i.e. Substantial assistance, two of six activities of daily living are required and services must be rendered at arm’s length; the condition must expect to last longer than 90 days: Dementia.
Annuity LTC is designed, like any annuity, to defer taxation until the money is withdrawn. However, earnings are accelerated and is normally double the percentage of interest paid for normal use. Annuity benefits accrue slower than Life LTC as annuities are based on the amount deposited into the account and interest earned, whereas, life insurance benefits are immediately increased, i.e. $60,000 could possibly buy $100,000 death benefit.
Q: Are long-term care products available for short periods of time?
A: Yes. Some Insurance Companies offer short-term products, i.e. up to 365 days.
Q: Are short-term LTC policies really beneficial?
A: Yes. There are situations short-term LTC can prove beneficial. One, when Medicare Skilled Care days are no longer available, i.e. Original Medicare covers rehab up to 100 days—however, when one’s condition is stabilized, Medicare benefits end within 2 calendar days. Medicare does not cover custodial care like assistance with the activities of daily living.
Secondly, many people cannot afford a policy for benefits 3 or more years. Statistics are many couple’s life savings are wiped out within 90 days of paying for care.
Thirdly, LTCI has traditionally been marketed to those with assets to protect. Many families fit into those of moderate means. They have a modest income, own their home and less than $200,000 in investments. They are afraid to spend one penny to improve their quality of life. They may need an undetermined amount of money for care because there is no one available to care for them– not even on a short-term basis. Those folks do not qualify for any government assistance.
Q: How beneficial is an accelerated benefit for long-term care on a regular life insurance policy?
A: Accelerated benefits are not true long-term care policies nor do they substitute for LTCI. Life insurance is purchased for a specific need. The LTC acceleration rider is an added feature that can help many out of a bind, i.e. needing funds to cover an elimination period on their LTCI. This living benefit can act as a safety net and is one more option to help minimize the burden of a catastrophic need. Normally there are no restrictions on spending the money. To access a portion of your policy’s death benefit you must have a critical illness, chronic illness or terminal illness. A physician must certify the need. I see this could be specifically beneficial to younger insureds in cases of accidents or catastrophic illnesses.
Q: If I currently have a LTCI policy, what are some suggestions on how to reduce my premium without reducing my benefit?
A: Many policies will allow one to drop the inflation rider. After age 70, benefits are not affected substantially by inflation. Restoration of benefits is another benefit you could eliminate.