We asked several long-term care insurance (LTCI) experts to suggest key points that every advisor should know about the coverage. Here’s their advice:
Combination products aren’t just for health LTCI declines
Bruce Moon, vice president of marketing at The State Life Insurance Company
Combination products, also known as asset-based LTCI, use life insurance and annuities as the foundation for long-term care protection. These products have attracted new attention as a result of (1) recent consumer-friendly federal tax legislation and (2) continuing bad news regarding rate increases from health LTCI carriers.
The target market for these products has been clarified over the past decade, and the demographics do not include those who have already been declined for health LTCI coverage. A targeted customer profile for combination products would include someone who:
- Understands the win-win approach: win if you need LTC benefits and win if you don’t. These are clients attracted to the fact they might not need LTC, and know their unused dollars are not wasted but, instead, distributed as a death benefit.
- Appreciates the single-premium alternative to LTC funding. Reallocating existing assets is more appealing to retirees than pulling money from their fixed income, which has been shrinking with the current low interest rates. And, single premium means no rate increase surprises.
- Is in fair or better health because combination products are medically underwritten.
Irrevocable trusts can own LTCI policies
Karen Mellon, CLTC, CSA, vice president of long term care, MARSH Private Client Life Insurance Services
Anthony C. Stratidis, CLTC, LTCP, senior vice president at Marsh Executive Benefits, Long Term Care Benefits Planning Consultant
Several insurance companies allow ownership of a qualified LTCI contract by a third party, including a trust. Some tax authorities believe that an LTCI policy owned by an irrevocable trust can be an effective wealth preservation/transfer strategy that would work like this:
The individual will intend to pay the costs of long term health care from their assets, which would require that they have liquid assets on hand to make the payments. These payments will reduce his taxable estate. An irrevocable trust will be created which buys a long term care insurance policy. The grantor (i.e., the insured) finances the purchase of the insurance by making gifts to the trust; a portion of the gift may qualify for the medical care gift tax exclusion.
Should the individual need long term health care the insurance company will pay the benefits to the trust, which presumably would be treated as amounts received for personal injuries and sickness and as reimbursement for expenses actually incurred for medical care. The trustee would invest the insurance payments made to the trust – if the individual needs care – for the benefit of the trust beneficiaries.