Long Term Care Planning Strategies & Options

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The Tax Advantages of Life Insurance

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The Basics of Traditional Long Term Care Insurance Plans

Long Term Care SettingWhat is Long Term Care?
Long Term Care is the assistance provided to a person who has a cognitive impairment requiring continual supervision or is unable to perform certain activities of daily living (ADLs) such as bathing, dressing, or getting up from a bed or chair. Long term care services may also include assistance with day to day activities such as medication management, personal hygiene, light housekeeping or meal preparation. Services provided by a physical, respiratory or speech therapist may also be included. Long term care can be provided in your home, an adult day care center, assisted living facility or a nursing home.

What Is Long Term Care Insurance?
It is insurance that provides for Home Care, Community Care and Facility Care.

What is Not Long Term Care Insurance?
Medicare or Group Insurance do not provide coverage for Long Term Care.

Long Term Care Coverage Is...
provided by Medicaid for Nursing Home Care, but only after you've exhausted all your assets.

Why People buy Long Term Care Insurance:

  • To provide dollars to help their families care for them
  • To protect assets
  • To protect retirement Plans
  • To provide peace of mind
  • To provide choice when care is needed
  • To provide independence

A good Plan should provide:

  • Home Care: Skilled Services, Homemaker Services, Chore Services, Hospice Care, Adult Day Care, Caregiver Training and Home Modification
  • Facility Care: Assisted Living Care, Alzheimer's Care and Nursing Care
  • Care Coordination: A trained professional to assess care needs, find providers, provide monitoring, design a plan of care and assist with initial claim forms.
  • Additional Features include Inflation protection, Alternate Care Benefit, Respite Care and Waiver of Premium.

Long Term Care Insurance Policy Structure

  • Daily or Monthly Benefit: Range from $50 to $500 Daily ($1,500 to $15,000 Monthly)
  • Benefit Period: Range from 1 year to 10 years, depending on issuing Company
  • Elimination Period: 30, 60, 90 days are common (deductible period before benefits are paid)
  • Maximum Initial Benefit: A function of the Daily or Monthly Benefit multiplied by the Benefit Period.

Claim Qualification

  • Require Assistance with at least 2 of 6 Activities of Daily Living (ADLs) - Bathing, Eating, Dressing, Toileting, Continence, Transferring
  • or require assistance due to severe cognitive impairment (e.g. Alzheimers)
  • and a Health Care Professional certifies the need for care expected to last 90 or more days and that benefits will be paid to you based on a plan of care

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Chronic Illness & LTC Riders

Long Term Care & Chronic Illness Riders on Life Insurance PoliciesChronic Illness & LTC riders on Life insurance contracts provide an acceleration of the planned death benefit while the insured is still alive. This benefit is triggered by the need for assistance with 2 of 6 ADL’s or a cognitive impairment. Like all insurance policies, there are many variations, and nuances to learn, and you need to be careful not to over simplify the differences. These are paid riders that add to a base premium cost.

  • Chronic Illness riders, such as American General’s Accelerated Access Solution Rider, or Prudential’s Benefit Access Rider, are filed for tax purposes as a 101g acceleration of the death benefit. This means that these are chronic illness riders and require the need for assistance with 2 of 6 ADL’s or a cognitive impairment, to be permanent. However, chronic illness riders do not require any special LTC training. Many of these products offer a monthly payout of 2% of the initial death benefit. (American General has other available options for payouts as well, please see our chronic illness rider spreadsheet for more details)
  • LTC riders are filed for tax purposes as a 101g and 7702B. This additional filing changes the qualifications required to go on claim. While both chronic illness and LTC riders require the insured to need assistance with 2 0f 6 ADL’s or have a cognitive impairment, chronic illness riders require that need to be permanent. LTC riders require that the need of care is for at least 90 days. Plans filed with 7702B (LTC) may require specific LTC training depending on the state regulations. Genworth’s Accelerated Benefit Rider for Long Term Care Services, is an example of a 101g & 7702B filing. Since Genworth has such a large traditional LTC market, they used their experience when they developed their LTC rider. With Genworth’s plan, the insured will designate a maximum number of months of care, 24, 36 or 48 months. The maximum monthly benefit for LTC care is calculated using the Initial death benefit, divided by the selected number of months of care. Other carriers that offer an LTC rider are Minnesota Life and Transamerica. Those carriers offer indemnity benefits using the 2% of death benefit per month, similar to the chronic illness riders.
  • No Cost Chronic Illness riders, are the third alternative and offer a reduced benefit for chronic illness care with no additional premium. The following is an explanation of North American’s Chronic Illness Accelerated Benefit Rider. The claim triggers are the same as with the Add-on Chronic Illness riders however, the difference is that the benefit must be elected each year by the insured and the benefit can only be paid out as a lump sum once or twice per year. The death benefit would be reduced by the amount the client chooses to accelerate, however, the actual amount paid to the client will be less than the amount accelerated. The reason for the difference is a discount that is applied to the acceleration based on the insured’s age, premium class, interest rates, etc. There is also a $200 fee applied to each election. This type of chronic illness care is more difficult to use for planning purposes since you do not know exactly how much benefit you will receive. However, since there is no additional premium is required, it is an excellent benefit for the cost.

Long Term care planning is an essential part of protecting your client’s family and their hard earned assets. Traditional LTC provides the most protection for a long term health care need, while the No-Cost Riders provide the least amount of protection.

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