More than One Way to Skin the [Long Term Care] Cat (Part 2)

In part 1 of this series, we discussed the very real threat a Long-Term or extended/chronic care event can pose to our retirement security.  We discussed the statistics behind the potential for such an event, as well as the likelihood (or not) that a public program like Medicare may be there to pay for care we may need, whether at home, in an assisted living setting or, perhaps, a nursing home.

We took a brief look at the most common financing method we’ve seen for LTC costs historically – traditional Long-Term Care Insurance (LTCI).  While traditional LTCI remains a very viable solution for many people, some newer solutions have come to the financial planning marketplace in recent years, and are gaining in popularity.

There are 2 main types of this new kind of tool for LTC planning, and they commonly fall under the phrase “Linked Benefit.”  They are especially attractive for clients who have resisted the purchase of traditional LTCI, perhaps because of concerns over:

• The possibility of future premium increases on their traditional LTCI or
• The desire to make sure they “get something back” if they, for example, pass away and never need extended or chronic care services

While it is true that traditional LTCI is true “insurance” like our homeowner’s or auto insurance (which, similarly, don’t return anything to us, or our estates, at death if we don’t claim against them), some client express concern when the same principle is applied to LTCI.

Similarly, while rate increases can – and do – happen with traditional LTCI (as we’ve seen in recent years and also typically happen with health, auto or homeowner’s insurance), some people avoid purchasing traditional LTCI and, as a result, are therefore left unprotected against a chronic or extended care event.  That ultimately may lead to clients having to pay for needed care services out of pocket which, as we also discussed in the previous article, can be very expensive and deplete retirement or other assets we might intend for other planning goals.

These new Linked Benefit types of policies are intended, in part, to help allay those concerns.

The first type – and the one we’ll examine in this article – is typically funded with a single premium deposit, or a series of 3, 5, 7 or 10 payments.  This allows for some flexibility within the same type of policy when a client does not have – or does not want to commit all at once – the single deposit amount.

The nice thing about these types of policies is that they provide a number of benefits to clients, including:

• A Long-Term Care (LTC) benefit that provides a “pool” of money to offset some or all of one’s LTC expenses
• A life insurance death benefit, which pays an income tax free amount to one’s beneficiary(ies) in the event the client passes away without having used the LTC benefit
• An optional “Return of Premium” (ROP) benefit, which allows the client to get back 100% (a small amount of which may be taxable) of their premium deposit(s) (subject to some limitations) in the event they have a change of heart after policy purchase and want their money back
• A guarantee that no further premium amounts will ever be required

One could argue that – with these types of policies – the client “wins” no matter what.  As a result, many of our clients are finding these newer insurance based LTC planning tools quite valuable as a part of their overall planning portfolio.

As we often say, there are no right or wrong answers when it comes to the question of “which policy type is ‘best’?”  The reality is that different policy types have their own respective benefits, and we look at ALL the available options to help you determine which one(s) might be the best fit for you.

If you would like to learn more about these policies, and perhaps have a customized proposal created for your own situation, please give our office a call and we will be glad to help.

Source: Bob Vandy, NYLTCB

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