New hybrid insurances may help with long-term care
Solutions for long-term care funding have generally been limited. Financial planners might recommend long-term insurance. In some cases, reverse mortgages might be used to fund at-home care. Still, the products come with a downside.
One of the primary issues we have seen is that, by the time seniors and their families come to our office, often it is too late to qualify for long-term care insurance even where a parent or spouse is willing to pay. Underwriting is a serious concern.
If you now suffer from diabetes or if a parent has the beginnings of memory loss, for instance, an insurer will not place a long-term care insurance policy.
The answer for many people in the industry is that policies should be taken out when the applicant is younger and healthier. Still, this leaves those who have not planned ahead. Even for some who have long-term care insurance, the amount of coverage may be inadequate.
As of Jan. 1, 2010, thanks to the federal Pension Protection Act, options have been expanded and have become more attractive with hybrid products that are part long-term care insurance and part annuity or life insurance — so-called hybrid or combination products.
Some annuities and life insurance already owned by applicants may be converted to purchase a hybrid with long-term care benefits and there can be significant advantages. This is what you need to know.
Underwriting for the combination life and long-term care insurance and annuity and long-term care insurance products can be less of a problem than with pure long-term care insurance products.
If a parent or spouse who currently owns life insurance with significant cash value or one or more annuities that are single premium deferred annuities not purchased with retirement funds, he or she might convert the policy into a combination product using a Section 1035 exchange under the U.S. tax code. For a knowledgeable insurance agent, reach out to bear river insurance services today.
His health will not be as significant an issue since the policy was not originally written exclusively for long-term care. Also, initial combination policies can be written with less concentration on medical conditions.
There may still be a waiting period between the time that the product is purchased and the time that the benefits can be accessed but the less-stringent underwriting requirements open possibilities for many seniors who might otherwise be unable to obtain long-term care insurance at any cost.
Hybrid policies, because of their life insurance or annuity component, may pay out even where there are no long-term care needs. At a recent presentation given by a financial adviser, I heard for the first time a comparison made between long-term care insurance and term life insurance. The point being made was that long-term care insurance is available to pay out as long as premiums are being paid in the same way that term life insurance continues only so long as premiums are paid.
This is not, by the way, intended to disparage either product but merely to point out a feature. Some potential purchasers might hesitate in buying long-term care insurance because they want to know that there is a cash benefit for their years of payments even where they do not eventually need long-term care. This need might be satisfied with a hybrid product.
The amount of the long-term care insurance benefit may be higher than the cash value contained in the annuity or life insurance policy.
In an article on the new law by Alan Lavine of Raymond James, “Long-Term Care Annuities Get a Break,” on Sept. 15, 2009, it is claimed that Genworth, John Hancock and United Omaha Life Insurance Co. pay out two to three times the account value for long-term care for up to six years. There is also a product being offered by Lincoln Financial Group.
Figures must be explored.
Whether a hybrid product makes sense must be examined in terms of the individual. Plans are not equal and some companies placing products have more solid reputations than others.
Also, deferred annuities have a history of being oversold to the senior market and there is good reason to get as much detail as possible.
However, since the added product is insurance, the payouts are estimated at more than the cash value of the annuity or life insurance alone and withdrawals used for long-term care are intended to be tax free.
This is an area where it is best to ask many questions and have answers confirmed in writing.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.