Millions of Americans had the foresight to purchase either traditional standalone or hybrid life/ltc plans and are benefiting from the policies. For those who never bought coverage, however, there may be an option in the form of medically underwritten "point-of-need" products that can play an insurance role for those already needing care. For advisors working with adult children of clients needing care they may be a solution.
These "point-of-need" plans can take two forms - as a medically underwritten single premium immediate annuity or as a single premium medically underwritten LTC Insurance product. The concept is similar for both - that the single premium will result in stream of money that will last as long as the policyholder is alive and will alleviate the fear of running out of money.
Because the monthly benefit amount is based on the anticipated life expectancy of the applicant, the older and more disabled someone is the higher their monthly benefit will be. This means the underwriting is the opposite of traditional LTC or hybrid life/ltc plans and carriers have to be afraid that people are too healthy for coverage. Because medical health determines the premium rate, carriers have devised on-line health questionnaires to determine the single premium.
Here's an example. A 90 year old widow with dementia is placed in a memory care assisted living facility costing $4,000 per month. This widow has $300,000 in liquid assets after a house sale., and receives $1,000 per month in social security benefits. The children believe the money will last for her entire life, but are worried about cutting it close. They look at purchasing a single premium medically underwritten LTC plan that will pay $3,000 month directly to the assisted living facility. The premium cost is $150,000 but they decide the certainty of the income stream is worth it. Benefits paid to the facility are tax-free.
Like a single premium life annuity, the big "gamble" with these products is an early death of the policy holder meaning the insurance carrier has "won" and keeps all the money. Of course, that is the flipside of having access to a guaranteed stream of money to pay for care for life.
There are advantages to both the annuity and LTC Insurance form of coverage. For the annuity form, the advantage is more options of getting premium back for an earlier death and the fact that if the policyholder "recovers" (a slim possibility) and no longer needs assistance with activities of daily living the plan would still pay.
The LTC version probably offers more attractive benefits, including the tax-free benefits and the ability to do a 1035 exchange into a policy. Here's a side-by-side comparison of two unnamed products on the market:
|Medically Underwritten Annuity||Single Premium Point of Need LTC Insurance|
|Premium||Single Premium||Single Premium|
|Minimum Premium||$50,000 or amount needed for $1,000/month in benefits||Amount needed to fund $1,000/month in benefit|
|Form of Insurance||Annuity||Tax-qualified LTC Insurance policy|
|Medical Underwriting||Yes - online||Yes- online|
|PPA 1035 Exchange Opportunity?||N/A||Yes - ideally from Non-Qualified Deferred Annuity|
|Benefits Taxable?||Amounts above return of premium taxed||7702B LTC Insurance tax treatment - tax free for LTC services|
|Early death benefit||100% of premium returned if death in first month, 50% in months 2-3, 25% in months 4-6;, or option to have return of premium for death in first 5 years||Return of Premium minus benefits paid out for deaths within the first six months of coverage|
|Inflation Protection||1-8% increase option at time of issue available||GPO Rider Available|
Most buyers don't elect automatic inflation because they can simply purchase more coverage later, and at a better rate if they are not as healthy.
To learn more, take a look at this consumer video about the Reliable Living Plan, or view a replay of a recent webcast on the product. The product is currently available in about 32 states.