Combination Long Term Care Policies

Combination Long Term Care insurance (LTCi) policies, also known as linked-benefits or hybrid policies, are quickly gaining popularity.  It combines or links long term care benefits with another type of insurance - life insurance plan or an annuity.  It provides a benefit pool to pay for qualified long term care expenses, but if care is not needed, the heirs receive the life insurance death benefit or the cash value from the annuity.

Regardless of health there is a plan to pay long-term care (LTC) expenses. The alternatives available will determined based on age and health, whether perfect health or already receiving care.

Life Insurance with Long-Term Care Benefits

A linked-benefit or hybid or asset-based long term care policy is a life insurance policy that you are able to use your death benefit (all of it or a portion of it) to pay for qualified long term care expenses, should you need it.   (IRC Code Section 7702B).  The rider is an additional benefit pool for long term care.  This is a great way to have tax-free distributions when long term care funding situation occurs by maximizing the value of existing money.

Benefits:

• Premiums are guaranteed, no rate increases in the future, this is a plus.  Where as, traditional long term care insurance policies are guaranteed renewable and can have future rate increases on a class basis.
• If you change your mind, you can have your premium returned, net of surrender charges.
• Death benefit to beneficiaries, net of qualified long term care expenses paid by the policy.  Some policies have a small death benefit, even if the death benefit is exhausted by long term care.
• Tax-free long term care distributions from the annuity
• Continued tax deferred accumulation in the annuity
• Access to funds
• Option to extend benefits beyond the value of the annuity by adding a continuation of benefit rider at time of purchase.  One carrier has a lifetime option.
• Inflation protection is available
• Some have cash surrender value
• One carrier offers a joint policy for two people.  It is a 2nd to die life insurance policy, that permits either or both spouses, business partners, siblings or parent/child to access the policy to cover long term care benefits.

Medical underwriting for both life and long term care is performed to determine eligibility for a life insurance policy with a long term care rider.   Some life insurance policies do not underwrite for the LTC benefit. These plans allow you to accelerate some portion of the death benefit to pay for LTC expenses.

Premium can be paid with a transfer of accumulated cash surrender from a life insurance policy or an annuity, 1035 exchange, that you no longer need or use cash from a checking, money market or another account.   Single pay to 20 pay option is available with various companies.

Policies can pay claims on a cash indemnity method or reimbursement.  With cash indemnity, the full monthly benefit is paid to the owner of the policy when eligible for benefits.  No bills or receipts need to be submitted nor are considered.  Flexibilty for the insured to receive the LTC care they need, select where they want to receive care, from whom they choose (even family or friend) and for future types of caregiving.  Reimbursement will require submission of bills then payment made up to the daily or monthly benefit amounts.

This is not a partnership qualified policy for long-term care.  

If the long term care rider is a separate premium, it may be tax-qualified long term care and eligible to tax benefits.

Case Study Life with LTC Rider

Life Insurance with A Chronic Illness Rider (IRC Section 101g) - 

• Some plans require a permanent illness/condition.
• Benefits are paid as a cash indemnity
• Built-in riders may discount the death benefit before acceleration; easier underwriting
• Riders at an additional cost include additional underwriting and provide a defined benefit
• A portion of the death benefit can be used to pay for qualified long term care expenses.  Minimizes unexpected financial strain due to a chronic illness by providing access to funds while LIVING.

Annuities and Long-Term Care Benefits

There are a range of annuities that can provide long term care benefits, if needed in the future.  Some require medical underwriting, others do not.    

If  a non-qualified deferred annuity with a taxable gain,  a tax-free exchange, 1035 exchange, into another annuity with a long term care rider.  

• More lenient medical underwriting is applied to annuities with long term care rider, than life/long-term care and stand-alone long term care insurance.
• Premiums cannot increase.
• Gains in annuity received as LTC benefits are tax-free.
• Tax-Qualified dollars may be used to fund policy.
• One carrier offers shared benefits, lifetime LTC coverage and indexted annuity.
• Return of premium, if long term care benefits are less than annuity value

These products have a low interest rates stifle growth in annuity values.  Initial LTC benefits are a return of cleint's own money, then the rider portion is used for more long term care.

Indexed Annuity with Income Rider

There is no medical underwriting nor telephone interview for this option.   Accumulate assets in a  safe investment set aside specifically for LTC expenses in an indexed annuity with an income rider.  Principal is protected and a guaranteed stream of income for life through a guaranteed withdrawal benefit that will increase if you enter a nursing facility.

Qualified and non-qualified funds may be used to purchase.

Remainder after the death, goes to beneficiaries.

Some may be on joint lives

Benefits are subject to taxation.

Medically Underwritten Immediate Annuity

This is an option for someone who is currently receiving care.  In exchange for a single premium to an insurance company,  a guaranteed income payment is received by the annuitant for the rest of his or her life to pay for qualified long term care expenses.  The monthly income payment is based on age, health and life expectancy at the time of application.  The monthly income payment is determined at the time of underwriting using factors such as age, gender and health of the annuitant along with the income plan chosen and any optional benefits selected. The lifetime income payment can be used for ANY purpose, including to help: provide living expenses, medical expenses, offset long term care expenses, ease family's financial burden...

Case Study

For more information about combination LTCi products, visit our FAQ's or contact us.