When I entered this industry 20 years ago, I knew very little about the importance of protecting a life savings against the threat of long-term care expenses. Then one day, two years into my career, I received a phone call from a client telling me to liquidate his mothers account which held a little over $326,000. He went on to explain that she had been receiving around the clock at-home care and needed this money to cover this expense for the next 24 months.
That’s when I began addressing the growing need to protect my client’s life savings against the potential of future healthcare costs. At the time, the primary weapon to help defend against this threat was by transferring the expense risk to an outside company through the form of a long-term care insurance policy.
Over the last year and a half, five clients of our Enhance Wealth family have had a parent or spouse begin long term care with current monthly expenses ranging from $5,800 a month to over $16,200 for full-time at home care.
NEW OPTIONS EMERGED
In 2006, Congress passed the Pension Protection Act (PPA) which provided new options to help fight the growing costs of long-term care in two ways:
1. Created the ability for “hybrid” annuity/LTC and life/LTC accounts to distribute LTC benefits completely tax-free. (Hybrid life insurance policies include a “Living Benefit” provision allowing owners to access the death benefit amount for qualifying LTC expenses while they are still living.)
2. Current owners of traditional annuity and life insurance policies could exchange older accounts for an updated annuity/life hybrid policy with LTC benefits without incurring a tax penalty. (A little known provision also authorized an exchange into a standalone LTC policy)
Combination Life Insurance with Lifetime Long Term Care Benefits for Couple
Updated policies combining Life and Long-Term Care benefits are referred to by many names including Hybrid, Asset-Based, Combo, or Linked Benefit. These all provide the availability of a tax-free lump sum to beneficiaries at death, tax-free distributions to pay for qualifying long term care services during your life, or both.
These accounts can be customized to meet individual needs by maximizing the benefit considered the most critical for your situation.
As an example, someone with a higher need for estate protection may seek a policy providing the highest death benefit possible with a lower amount available for long term care needs. Others may desire a smaller death benefit in exchange for a higher long term care benefit, and some may meet in the middle and want an equal amount of benefit for beneficiaries and long term care needs.
The decision between these options depends upon your specific needs and based on which benefit is considered more important to you.
Case Study: Life/LTC policy for a 55/60 year old couple providing maximum amount of Long Term Care benefit.
The following chart provides an example illustration for a male age 60 and female age 55 (non-smokers). This account provides a tax-free benefit to loved ones of $166,250 at the second death, a tax-free monthly combined benefit of $9,974 that will pay out over each person’s lifetime in the event of a long term care need, and total combined premiums of $99,997.
|The threat of long term care expenses represent a growing danger that can destroy the money set aside to support your lifestyle, future income, and desired legacy for loved ones. |
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% over 65: https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html
2000 Claims, # Insurers: https://www.naic.org/documents/cipr_current_study_160519_ltc_insurance.pdf
2017 Claims: https://www.aaltci.org/long-term-care-insurance/learning-center/ltcfacts.php
2016 Standalone Sales: http://bit.ly/2HKkegr
2009 Hybrid Sales: https://www.naic.org/documents/cipr_current_study_160519_ltc_insurance.pdf
2017 Hybrid Sales: http://bit.ly/2TmpiJb
Guarantees provided by annuities are subject to the financial strength of the issuing company and not guaranteed by any bank or the FDIC. Case studies presented are fictitious and all numerical examples are hypothetical and are used for analytical purposes only. Provided content is for an overview and informational purposes only and is not intended and should not be relied upon as individualized tax, legal, fiduciary or investment advice.