Studies say 70 percent of seniors can expect to use some form of long-term care during their lives. There are various ways to obtain long-term care (LTC) coverage, but which should you advise for your client?
Every option has pros and cons, but we believe the best choice depends on your client’s individual situation.
The popular methods of securing LTC insurance are traditional stand-alone LTC policies, life insurance with an LTC rider, or an annuity with a LTC rider. Do you give your clients all three options?
Traditional Stand-Alone LTC Insurance
Long considered the only method of obtaining LTC coverage, stand-alone policies have a handful of points that clients and advisors alike should consider.
First, they lack the cash value buildup of other options, and their premiums can be very expensive. Since those premiums are tied to the insurer’s claims expenses, they are subject to rise. This makes these policies increasingly difficult to maintain for those living on a fixed income.
Clients also fear the “use it or lose it” nature of stand-alone LTC insurance. A policyholder can pay premiums for years and years into the plan, with the risk that they’ll pass away and never use the benefits. It’s very limiting to a client to only have one way to realize the investment.
Finally, with less than 10 carriers left offering traditional LTC plans, the market is very volatile. But there are alternatives to tradition, and we’ll provide reasons we think they’re worth considering.
Life Insurance with an LTC Rider
You can fill two needs with one deed when you provide a client’s life insurance policy and attach an LTC rider.
When the rider is triggered, these policies allow clients to pull money tax-free from their life insurance death benefit to pay for long-term care if needed.
Plus, in contrast to traditional LTC insurance, the policy value builds, leaving more money for long-term care. And if long-term care isn’t needed, the policyholder has been saved the cost of LTC premiums.
The main drawback of these policies are the rider fees, which don’t feed—and sometimes reduce—the death benefit. However, these fees are typically significantly less than traditional LTC premiums.
The client’s initial life insurance purchase can provide sometimes double or triple the death benefit in long-term care benefits. When long-term care benefits are needed, some policies pay out a percentage of the funds (usually a fixed amount on a monthly basis), while others reimburse long-term care expenses as they are incurred. Either way, these funds are an acceleration of the initial death benefit.
Fixed Annuity with an LTC Rider
The final way to secure LTC insurance is to attach an LTC rider to a fixed annuity. These riders can typically multiply a client’s initial investment by two or even three times.
Clients can retain access to their money if they should need it, and the policy will continue to grow if nothing is withdrawn for long-term care. Two attractive features of this option are the affordable rider fees, which are typically less than traditional LTC premiums, and the underwriting, which is less stringent than it is for traditional LTC insurance or life insurance policies.
However, these policies are typically paid via a single premium, so many require a larger amount of money up front.
Make It Work for Your Client
What do we suggest? We can never give you better advice than to do what’s right for each of your individual clients. Determine the likelihood they’ll need long-term care and their financial situation. With this information, you can decide if your client can afford the monthly premiums or if they would be better off making a lump sum payment in an annuity or life policy.
Additionally, consider the cash buildup of the policies available and the liquidity of your client’s assets. When you’ve thought through all of these things, you’ll be able to guide any client in their long-term care planning.