Background: Long-term care coverage will pay for qualified Long-Term Care (LTC) services that are required by a chronically ill individual and provided by a plan of care prescribed by a licensed health care practitioner. The person is expected to be unable to perform, without substantial assistance from another person, at least two Activities of Daily Living (ADLs) for a period of 90 days due to a loss of functional capacity. ADLs are: eating, bathing, dressing, using the toilet, maintaining continence, and transferring in and out of a bed, chair or wheelchair.
Our Case: Clients are concerned with their current LTC insurance policy, which is a type of policy where if LTC services are never needed, they will never collect anything, nor will there be any Death Benefit, should they pass.
The Question: What type of policy would be the most beneficial to our Clients? The Results: The market offers four different types of policies that provide for LTC services:
- The traditional “Use-it or Lose-it,” similar to our Clients’ current program.
- A simplified life policy based on a single cash deposit. This cash amount is not an investment. The policy then has a LTC Rider as well as a Death Benefit.
- A variable annuity policy based on a single cash deposit. The cash value is an investment. This policy also has a LTC Rider.
- A permanent life insurance policy that offers an advance of the Death Benefit to satisfy any LTC needs.
The second type is a unique policy that would offer three benefits: a combination of Life Insurance, LTC benefits and an option for your money back should you ever want it. This is offered through a Simplified Issue Universal Life Insurance policy with an LTC Rider. This type of policy has the following benefits:
- Provides LTC Benefits for six years.
- Provides a Death Benefit. This is nice, but not the primary driver for our recommendation. If LTC services aren’t needed and you don’t ask for your money back, you will get something at death. Naturally, if you use any LTC Benefits, the Death Benefit is reduced.
- You can always have some or all of your original deposit back, less any benefits paid. Should you elect to surrender this policy, a portion of the refund is deemed taxable by the Federal Government as they have determined that the coverage you enjoyed from the time you started until the time you surrender is an “economic benefit.” The insurer will refund up to 100% of your money (there is a five-year graded surrender period) and the previously reported portion will be taxable.
Bottom Line: With this unique product, our Clients have comfort in knowing they are assured to receive at least one of the three benefits offered by the policy.
This is a hypothetical example for illustrative purposes only. The experience of this client may not be representative of the experience of all clients and is not indicative of future results. Any tax advice contained herein is of a general nature and is not intended for public dissemination. Further, you should seek specific tax advice from your tax professional before pursuing any idea contemplated herein. This advice is being provided solely as an incidental service to our business as financial planner. Securities offered through ValMark Securities, Inc. Member FINRA, SIPC. Financial Planning and Investment Advisory Services offered through B & E Investment Advisers, Inc., a State Registered Investment Adviser, Business & Estate Advisers, Inc., B &E Investment Advisers, Inc. and B&E Pension Advisers, Inc are separate entities from ValMark Securities.
A Time to Die
