Most clients think of life insurance as a way to provide cash to someone they leave behind. There is another approach to consider about life insurance. You can use it to gain protection from future long-term care costs while you are still alive. When this is your motive, the death benefit is not the primary reason you are purchasing the policy. The death benefit becomes a backup cash reserve for future beneficiaries if you end up not needing the long-term care benefits.
Long-term care riders to life insurance policies have been in existence since 2010, but many people still do not know this option exists. Insurance companies are allowed by law to offer these riders on term life, whole life and universal life insurance policies. The basic concept is that the death benefit is accelerated when one of the following two conditions are met:
1. The insured is unable to perform 2 of the 6 activities of daily living (ADLs). The commonly accepted six ADLs include eating, dressing, bathing, transferring, toileting and continence.
Or
2. The insured is cognitively impaired.
Most of these plans are flexible in terms of the care received. They pay out a monthly rate and the insured can choose how to spend the money on the care received. It can be to pay for a nursing home facility, in-home provider or even to pay a family member for caregiving. It is extremely important to read the terms of the policy very carefully as they all differ.
Benefits of this Strategy
- It is a life insurance policy, not simply long-term care insurance, so there is a death benefit if that is not used up in long-term care costs.
- The death benefit is used up dollar for dollar, so if you use some but not all of the allocated amount, then your beneficiaries still inherit the remaining death benefit when you pass away.
- The long-term care benefits are paid monthly. There is usually a cap on what can be paid each month, but the amount is typically sufficient to cover most long-term care costs. The average monthly payout on these riders is $8000/month.
- Some policies offer a return-of-premium rider. If you decide to cancel the policy, you get refunded all of the premiums already paid minus any benefits received.
Another huge benefit of this strategy is the option to purchase an increased amount of long-term care coverage. Often this will increase the long-term care benefits to double or even triple the death benefit. This can be a huge advantage in protecting your other assets from long-term care costs.
For example, if you purchase a life insurance policy with a death benefit of $100,000 and add a long-term care rider plus additional long-term care coverage and you become cognitively impaired or lose the ability to perform 2 ADLs, you can trigger the long-term care coverage and start receiving a check in the mail. Let’s use easy numbers and assume you receive $10,000 per month. You live for two years and receive that $10,000 per month for those 24 months. That is a total of $240,000. Since the death benefit on the policy was $100,000, it has been used up by the long-term care costs so your relatives do not receive a death benefit. They do however inherit other assets in your estate that you protected. If you did not have this strategy in place, you would have spent those assets on your long-term care needs. If you had not added the additional coverage, you would have used up the $100,000 accelerated death benefit in 10 months and then spent your other assets for the remaining 14 months of your life.
Life insurance with long-term care riders and additional long-term care coverage can be an excellent strategy for protecting yourself against these expensive end-of-life costs. For more information on long-term care planning, contact the experienced attorneys at Stouffer Legal in the Greater Baltimore area. You can schedule an appointment by calling us at (443) 470-3599 or emailing us at office@stoufferlegal.com.
