Paying for long-term care

How clients plan to pay for potential long-term care costs will often depend on their current standard of living and the guidance they receive from their advisors. Their options include:

• Self-insurance – This will only work if they have sufficient funds to set aside. Some use this strategy simply because they hope they won’t need long-term care.
• Government programs (Medicare or Medicaid) – Unfortunately, Medicare only covers a few LTC expenses and Medicaid is only available to those with few, if any, assets.
• Some form of long-term care insurance – If they want to plan ahead, this may be their best option.

Two insurance options available today

1. Stand-alone LTC insurance policies.

At one-time, stand-alone long-term care insurance policies were the primary solution for insuring against potential long-term care expenses. Early generations of these products often provided rich benefits and were popular for a number of reasons, among them:

• Lifetime cost of living adjustments to protect against inflation.
• Policies may qualify for state Long-Term Care Partnership programs, a joint federal-state program where applicants for Medicaid are permitted to keep one dollar of assets for every dollar of long-term care insurance coverage paid on their behalf.
• Premiums may be deductible for income tax purposes.
• Premiums pay only for long-term care coverage — no additional costs for other insurance benefits that may not be wanted. Stand-alone long-term care insurance remains an important option for clients. The marketplace has changed, however. Clients may find that fewer insurance companies offer these products and some of the popular features found in earlier generation products have been limited or are no longer available.

2. Life insurance with a rider to help pay LTC costs.

Unlike stand-alone policies, a life insurance policy with a rider can provide a certain amount of flexibility. The policyholder can use a portion of the cash value to supplement retirement income or accelerate some or all of the policy death benefit to help pay long-term care expenses. Any portion of the policy that isn’t used for those purposes, can be left as a death benefit for heirs.

Two main categories of riders

• Long-term care riders – sometimes called section 7702B riders
• Chronic illness riders – sometimes called section 101(g) riders 

Why the right rider matters

Meet George and Claire

This case study compares George’s long-term care rider with Claire’s chronic illness rider, and illustrates how consumer protections can mean the difference between having coverage and having to go without.

Read more in the "Covering the Costs of Long-Term Care" whitepaper.

A business-owned policy

This case study shows why a long-term care rider might be a better option than a chronic illness rider, if a company wants to protect themselves in the event of a top executive’s death or long-term care disability.

Read more in the "Covering the Costs of Long-Term Care" whitepaper.