4 Out-of-the-Box Long-Term Care Insurance Solutions

Sometimes you have to get 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!

LTC services can cost tens of thousands of dollars a year, depending on the type of service, and it could be an expense that some of your clients just can’t afford. It’s been reported that less than one-third of Americans age 50 and older have begun saving for LTC expenses. Having alternatives to long-term care coverage could save money for your clients and sales for you.

There are four types of products that make great alternatives to traditional LTCi. Let’s take a closer look at them and what they entail.

1. Short-Term Care Insurance

The American Association for Long-Term Care Insurance reports, “almost half (49%) of long-term care insurance claims last one year or less.” This time frame is also typically how long STCi policies provide coverage, so it makes sense to have STCi options available as an alternative to LTCi.

You may encounter a client who can’t afford or qualify for LTCi, or work with a client who gets declined for an LTCi policy. Purchasing an STCi plan is a great way for those who aren’t well-suited for LTCi to still get some form of financial protection and future peace of mind. It’s also a great way to cover the elimination period of an LTCi policy, if your client already has one.

STCi plans make it possible for those who aren’t well-suited for LTCi to still have the coverage they need.

Rates for an STCi policy can be lower than rates for an LTCi policy, especially for women since STCi rates are not gender-based like LTCi rates. STCi products also tend to have more lenient underwriting and higher issue ages (e.g., 84 or 89 years old) than LTCi plans.

What else should you know about these products?

• Monthly premiums and can be funded with existing assets (e.g., CDs, savings, annuities, IRAs)
• Plans available for under $50 per month
• Premiums NOT protected from rate increases (though it’s unusual for a rate increase to occur)
• Return of premium option — policyowner doesn’t have to lose their initial investment if they surrender the plan
• Clients can add an inflation protection rider to policies
• Can require less stringent underwriting than LTC policies
• Many have 0-day elimination periods and can cover care for up to one year

2. Annuity/LTCi Combination Products

Annuity/LTCi combination products are a form of asset-based LTC 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!

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)
• 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

3. Life/LTCi Combination Products

Life/LTCi combination products, which are also a form of asset-based LTC, consist of a life insurance policy with a built-in acceleration of death benefit rider. Generally speaking, this rider allows policyowners 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 policyowner doesn’t need LTC, their heirs can still receive the death benefit tax-free. Further, if the policyowner only uses part of the death benefit for LTC, their heirs can still receive what remains of it tax-free.

If the policyowner doesn’t need LTC, their heirs can still receive the death benefit tax-free.

Some carriers also include a residual death benefit with the policy. This feature allows the policyowner’s heirs to receive five to 20 percent of the original death benefit, even if the policyowner completely exhausted it to pay for LTC.

What else should you know about these products?

• Single-, limited-, or continuous-premium products that can be funded with existing assets (e.g., CD, savings, annuities, or IRAs)
• Limited and continuous premiums protected from rate increases
• Return of premium built into policy — policyowner doesn’t have to lose their initial investment if they surrender the plan
• Requires underwriting that can be streamlined or full (ideal clients should have average or excellent health)
• One policy may be able to cover two lives (e.g., husband and wife) — depends on the carrier, plan, and state
• Inflation protection rider available
• Agents can turn a client’s existing life policy (but not an existing annuity) into a life/LTCi combination policy using a 1035 exchange

4. Life Insurance + LTC or Chronic Illness Riders

If a life/LTCi combination product isn’t the best fit for your client, they may be able to purchase a universal life or whole life policy and then add an LTC or chronic illness rider to it. Both of these riders allow the policyowner to access their death benefit tax-free to pay for qualifying LTC expenses. Again, if the policyowner doesn’t need (all of) their LTC benefit, their heirs receive the death benefit (or what’s left of it) tax-free.

LTC or chronic illness riders allow the policyowner to pay for qualifying LTC expenses tax-free.

Before selling these types of products, there are some important things you should know. Life insurance policies with a qualified LTC rider fall under tax code 7702B. Generally, this means completing LTC CE training is required to sell these products, and the qualifying conditions for a policy may be recoverable or permanent. Clients wishing to get such a product also usually have to pass underwriting for both the life insurance policy and the LTC rider.

Life insurance policies with chronic illness riders fall under tax code 101(g). Generally, this means completing LTC CE training is not required to sell these products, and the qualifying conditions for a policy must be permanent in nature. Individuals interested in a life insurance policy with a chronic illness rider usually only have to pass underwriting for the life insurance policy itself.

What else should you know about these products?

• Multiple premium options and can fund with existing assets (e.g., CD, savings, other annuities, IRAs)
• No return of premium option — depending on the plan, clients may have access to their policy’s cash surrender value
• Premiums protected from rate increases
• Require full or partial underwriting (clients should have average or excellent health)
• Agents can turn a client’s existing life policy (but not an existing annuity) into a life insurance product with an LTC or chronic illness rider using a 1035 exchange

While traditional, stand-alone LTCi will still be able to provide many clients with the most coverage for their money, it is not a product all clients are willing to buy. Being prepared to discuss alternative LTC solutions, like STCi, annuity and life LTC combination products, and life insurance with LTC and chronic illness riders, will only allow you to help more individuals, grow your client base, and secure more sales.