By Mike Smith
Traditional Long-Term Care Insurance
Think of this insurance like your auto insurance policy – you pay the premium each year and hope to never use it, but it will payout in the event something does happen. You can customize the elimination period (the period that must pass before the policy pays out benefits), benefit amount, benefit duration and inflation rider. You can also ‘pool’ (combine) benefits with your spouse, meaning that if you pass away without collecting the full amount on your policy, your benefits can then be used for your spouse.
The biggest caveats for traditional long-term care insurance include:
- There is no return of premium if you die without using the benefits
- There could potentially be future premium increases
- LTC underwriting can be difficult
Life Insurance with Long-Term Care/Chronic Illness Rider
Another solution is life insurance with a long-term care or chronic illness rider. This involves purchasing a permanent life insurance policy that allows access to the death benefit while the person is alive to pay for long-term care expenses. Also, if you end up not using the long-term care benefit, or only use a portion, your spouse/children will inherit the remaining death benefit tax-free. This can be a great option for those who have built up cash value in an existing whole life or universal life insurance policy.
Annuity with Long-Term Care/Chronic Illness Rider
Thanks to a law change back in 2010, an annuity can now provide LTC benefits. An annuity that is not likely needed for retirement income may be switched to an annuity with LTC benefits. Think of it this way, whatever the account value of the annuity, double or triple it for LTC expenses. A $100,000 annuity could be worth $300,000 which can be used for LTC expenses. Best of all, there are significant tax benefits if funds are needed for LTC services. It is also possible to include a spouse on a joint policy even though the initial annuity is only on one spouse.
The biggest caveats for annuities with long-term care insurance include:
- Not suitable if needing the annuity for retirement income purposes
- These are not designed for account value growth, rather a defensive position
If you have questions regarding long-term care insurance, contact a WFA advisor or Mike Smith at [email protected]. WFA is not licensed to sell insurance.