The Advisor's View of Long-Term Care Planning

"Point of Need" LTC plans - what are they and how do they work?

Posted by Tom Riekse Jr | Mar 16, 2018 9:06:00 AM

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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
Issues Ages 70-95 65+
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.



Topics: Long-term care planning

Written by Tom Riekse Jr

Tom Riekse, Jr., ChFC, CEBS is the Managing Director of LTCI Partners. He has been working in the long-term care insurance business since 1991 with an emphasis on communicating the value of LTC planning to advisors, employers and consumers. He has primary responsibility for all marketing and technology initiatives at LTCI Partners, and has worked closely with carriers and vendors to make LTC Insurance easier to sell and enroll. Tom received his undergraduate degree in from Hope College, Holland Michigan. He subsequently achieved his MBA at the University of Illinois at Chicago, with a concentration in finance and marketing. He holds the Certified Employee Benefit Specialist designation from the International Foundation of Employee Benefit Plans and the Wharton School and his Chartered Financial Consultant from the American College.

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