Introduction

Most people believe they will never need long term care, or if they do, they will be able to cover it when the time comes. So what can be done if you did not plan for the possibility, and you or your loved one is confronted with an unexpected need for long term care?

Fortunately, there are solutions to help many of those people who failed to plan. One of the fastest growing areas of long term care planning is in the area of “crisis management”. There are tools available to financial and legal advisors who work with families in the arena of long term care planning that can help pay for the costs of care at the time that it is needed. One tool that is becoming more prevalent is settling life insurance policy death benefits into structured vehicles that will pay for the costs of senior retirement living and long term care.

Fiduciary Responsibility

To put this concept in perspective, understand that there are less than 10 million long term care insurance policies in-force today. By comparison, there are over 100 million life insurance policies in-force today. Seniors allow about $100 billion worth of policies lapse or be surrendered annually.  In fact, 88% of life insurance policies sold will never actually pay out a death benefit because the owner will abandon it at some point before they pass away.

They do this without realizing it is their legal right to settle the policy while they are still alive for the present day value and receive a significant percentage of the death benefit as a cash-out payment. After years of making premium payments, the owner of the policy can use it to help cover their retirement and long term care costs. Would you abandon your home without selling it after years of making mortgage payments? Of course not, and no one should abandon a life insurance policy after years of making premium payments if they are able to settle it instead.

Are you a Solution Provider?

Long Term Care Insurance products are an excellent option to consider if you are young and healthy enough to qualify, and if you can afford to make premium payments for an undetermined number of years into the future. But, there are also private pay options for people who failed to plan and all of a sudden find themselves in a position that they need to cover the expensive costs of senior living and long term care.

Any type of life insurance policy can be settled while the owner is still alive for a cash payment that will pay out the present-day value of the policy’s death benefit. With this sudden realization of funds from a “dead asset”, a couple of options designed to protect and efficiently administer the money for long term care expenses becomes possible:

  • The person can enroll the funds into a tax-free Long Term Care Benefit Plan designed to make monthly payments to any form of care they choose.
  • A medically underwritten IncomeAssurance Immediate Need Annuity will provide a guaranteed income stream to help cover retirement and long term care expenses for life.

It is important to emphasize that these options are designed to address immediate need to fund retirement living and senior care expenses. In fact, the older and more impaired their health condition, the more they will get when settling their policy and enrolling in either the Benefit Plan or the Annuity. It is a morbid concept, but the older and sicker you are the more money you can get with this approach to help pay for your long term care costs. Long Term Care Insurance is purchased before a person needs senior care.  The younger and healthier a person is when they purchase insurance, the lower the premium payments will be and the more option they will have.  A person who would qualify to purchase long term care insurance would be too young and healthy to enroll in the Long Term Care Benefit Plan or the IncomeAssurance Immediate Income Annuity.  By comparison, a person who qualifies to convert a life insurance policy into a Long Term Care Benefit Plan or IncomeAssurance Immediate Income Annuity would be too old or sick to buy long term care insurance.  If a person owns long term care insurance and life insurance they can convert the life policy into either option and use both together to make sure they maximize their senior care options.

Long Term Care Benefit Plan

Case Study:  A woman had been researching assisted living communities for her mother. They had also been looking for financial assistance because the monthly costs were more than they could afford. Her mother owned a life insurance policy and they had contacted the insurance company about accessing the accelerated death benefit. At fifty-five, she was afflicted with a rare, degenerative condition and could no longer care for herself. But the insurance company denied their claim. The assisted living community told them that they could convert the policy into a Long Term Care Benefit Plan instead.  The mother moved immediately into the community so that she could start receiving the care and support she needed.

  • Gender/Age- Female/55
  • Policy Size- $200,000
  • Policy Conversion- $119,000
  • Monthly Benefit- $5,600
  • Benefit Duration- 20 months
  • Funeral Benefit- $7,000

*The case example is for illustration purposes and does not represent future offers, statements, percentages or amounts. Actual results will vary.

What are the advantages to a Long Term Care Benefit Plan— The client can spend down to Medicaid and can set and adjust the monthly payments at whatever level they need to cover private pay costs they want  for as long as funds remain in the account; Cash final expense and all account funds go to family if death balance; Preserve or delay need to liquidate other assets/income.

What are the disadvantages to a Long Term Care Benefit Plan— – The policy owner is selling the policy for its present day value and they or the beneficiaries will no longer be able to collect the death benefit.

IncomeAssurance Immediate Need Annuity

Case Study

Their mother had a stroke a year ago, and is a diabetic who in recent months has taken several falls. They determined that annual care and living expenses would be $40,000 a year and are likely to increase over the next few years. Currently, in addition to a small pension and Social Security income, their mother has over $325,000 in savings. After going over the situation and the $40,000 per year they will need to help pay for her current assisted living facility they decided that using a portion of her savings to purchase an IncomeAssurance Immediate Need Annuity would make sense because it would guarantee a monthly income for the rest of her life.

  • Gender/Age- Female / 87
  • Single Premium- $233,608
  • First year annualized income- $40,000
  • Annualized income growth rate- 4%
  • Cumulative income year 5- $212,365
  • Cumulative income year 10- $458,555

*The case example is for illustration purposes and does not represent future offers, statements, percentages or amounts. Actual results will vary.

What are the advantages to an IncomeAssurance Immediate Need Annuity— A guaranteed monthly stream of income to supplement costs of living and care; Early death benefit protection; Enhanced death benefit riders and COLA riders; Stop-loss to preserve or delay need to liquidate other assets/income.

What are the disadvantages to an IncomeAssurance Immediate Need Annuity— The annuitant can lose a portion of their initial premium principal if they die earlier than expected.

Conclusion

As an advisor; to help families avoid this kind of tragedy you need to switch your mindset from selling products to providing solutions.  There’s no one size fits all policy to help people plan. And there’s certainly no one size fits all approach to dealing with a crisis situation such as this. Despite the best efforts of legal, insurance and financial advisors to educate people about planning for the inevitable with insurance products and savings, people tend to be too busy trying to keep up with today to worry about tomorrow. But the problems this causes goes far beyond the individual. There is a ripple effect that can engulf family members, employers, tax payers, care providers, and it can also create significant liabilities for advisors.

This is important because seniors have an overwhelming desire to remain independent, and do not want to become a burden on their family or a ward of the state by entering Medicaid.  Unfortunately, the current system to fund long term care has evolved into one that encourages seniors to impoverish themselves and move towards Medicaid as quickly as possible.  For the wealthy, long term care costs can be absorbed.  For the poor and disabled, government subsidized care is available.  But what about the majority of unprepared Americans that need access to long term care today? New approaches to fund long term care must be embraced, and settling life insurance policies to fund a Long Term Care Benefit Plan or IncomeAssurance Immediate Need Annuity is an option that has grown into a mainstream and accepted financial solution for long term care.