It’s no secret that the financial future continues to be uncertain for Americans. Across the country, people continue to feel the pressure of a healthcare industry undergoing seismic shifts, underfunded retirement plans requiring more personal contributions, layers of new taxes on earnings and overall long-term careers becoming a thing of the past.
With that as an economic backdrop, the most debilitating changes to income and lifestyle may result from an unanticipated health-related event. Knowledgeable advisors recognize the potential impact to a client’s portfolio from those developments, and the importance of a holistic planning strategy to help clients prepare for those types of challenges, while seeking to protect their assets and helping to ensure other long-term financial goals can be achieved.
Today’s insurance marketplace offers an increasing number of products that can help cushion against those types of unanticipated expenses, providing the financial resources that can help clients weather the most significant of storms. Each type of insurance policy can offer trade-offs in cost and benefits. Understanding the differences in these policies, and even when combinations of solutions make sense, can make the difference in achieving a clients’ financial outcome and meeting their desired lifestyle during retirement.
A Menu of Options
The options for reducing the risks associated with unanticipated long-term health costs have grown over the past several years to include traditional long-term care (LTC) insurance, Combination/Linked Benefit long-term care riders, and Accelerated Benefit Riders.
There are significant differences between them, and advisors need to become more knowledgeable in what they cover and how they are triggered in order to make the best recommendations to their clients.
To start, traditional and linked benefit long-term care options will cover both recoverable and non-recoverable qualified long-term care situations. Chronic illness accelerated benefit riders only apply to non-recoverable qualified long-term care situations.
The variety of benefit riders and the choices of coverage available allow advisors to better help clients customize their coverage and protect client’s wealth. An advisor’s success in helping clients identify the right solution is based on their understanding of what the riders provide, the differences between them, and how combining those with an insurance policy can provide clients with better coverage and care.
Depending on a clients’ situation, planning may include single or multiple solutions. To ensure the most comprehensive wealth protection strategy, advisors need to be able to decipher the differences in long-term care and chronic illness care needs. In some instances, it may make sense to combine solutions to provide a range of benefits to address specific issues and offer flexibility that can help cover a much wider universe of ailments that may impact a person’s financial wealth.
Traditional & combo LTC products
According to the US Department of Health and Human Services nearly 70 percent of people turning age 65 can expect to use some form of long-term care during their lives. Clients cannot rely on Medicare to provide long-term care coverage. To help clients combat those realities, a long-term care solution should be considered.
Long-term care coverage comes in many different forms including a traditional insurance policy covering long-term care or a linked benefit rider that combines long-term care coverage with a universal life insurance policy or fixed annuity.
Policyholders initiating a long-term care claim must meet the definition of being chronically ill, with a licensed health care practitioner certifying that the insured is unable to perform at least two of the six activities of daily living (ADL) for at least 90 days. Or they must suffer from a severe cognitive impairment, such as Alzheimer’s disease.
For those who purchase a traditional long term care insurance policy and die before needing it, a death benefit is not typically paid and the premiums are not usually recoverable by the beneficiary. Because of this, clients are now exploring linked benefit solutions.
In fact, individual linked benefit riders have seen significant increases in the past few years, according to LIMRA, a non-profit research and development insurance and financial services organization. In 2013, LIMRA reported that sales of life products with long-term care or chronic illness linked benefit and acceleration riders grew 12 percent, the fifth consecutive year of double-digit growth.2
Linked benefit riders offer the flexibility of either increasing the total benefit amount for long term care costs, while keeping the death benefit amount the same, or lengthening the number of months the insurer will pay for benefits. The payments will reduce the overall amount of the death benefit, but the policies typically include benefit guarantees and return of partial premiums if the policy is not used.