Long Term Care Insurance Choices – Riders and Hybrids

“Planning ahead for long-term care is important because there is a good chance you will need some long-term care services if you live beyond the age of 65,” cautions MyFederalRetirement.com. As Indiana elder attorneys, we certainly agree that long-term care planning has an important place in both retirement and estate planning, helping clients take charge of their finances and protecting both themselves and their heirs.

In particular, at Rebecca W. Geyer & Associates, our attorneys have been paying attention to the reduced number of viable long-term care insurance choices being offered to our Indiana estate planning clients. Why?  “For aging baby boomers, planning for long-term-care costs becomes more pressing every day. But the insurance that helps cover those costs is surging in price, while the benefits are becoming skimpier.”

There are two phenomena to which we’ve been paying special attention:

1.  Living benefit riders on life insurance policies
Living benefit riders take money out of the death benefit to pay for insureds’ medical care needs while they are still alive. The payment of the death benefit is “accelerated” and paid out while the insured is still alive, typically under any of the following three circumstances:

1. The insured has been diagnosed with a terminal illness with a 6-24 month life expectancy.
2. The insured has a chronic illness that leaves him or him unable to perform activities of daily living (bathing, continence, dressing, eating, toileting, transferring).
3. The insured has a critical illness (heart attack, stroke, cancer, renal failure, organ transplant, ALS, blindness, paralysis)

At first, investopedia.com explains, living benefit riders were offered only on cash value policies such as whole life or universal life, but they are now available in term life insurance products as well.

2.  Hybrid insurance
The hybrid insurance policy allows death benefits on life insurance to be used towards long-term care costs. These policies overcome the difficulty many clients have in paying for long-term care insurance, which they may be lucky enough to never need to use, but whose premiums are non-recoverable. With a hybrid policy, Damon Gonzales of NerdWallet.com points out:

1. After a surrender charge period (usually 10 yrs.), you can cancel and get a refund
2. There is a death benefit paid to heirs when you die
3. There is a guaranteed cash value, a guaranteed death benefit, and a guaranteed amount of long- term care coverage

Along with these advantages, Nerdwallet points out three big drawbacks hybrids have:

1. Premiums, paid over shorter periods of time than traditional long-term care premiums, can be much less affordable
2. There is hardly any growth offered on the cash value
3. Premiums are not tax deductible (Hybrids are not considered tax-qualified policies)

At Rebecca W. Geyer & Associates, we offer no insurance projects or direct tax advice, working with other advisors to address insurance product choices. Long-term care insurance is just one more example of the overlap among professionals in the area of law, insurance, and tax. 
Realizing, however, just how crucially important this subject is for the long-term well-being of our clients and their family members, we at Geyer Law want to provide the most up-to-date information on the subject of long-term care.

– by Rebecca W. Geyer