Most people believe they will never need long-term care. Or if they do, they believe they’ll be able to cover the expense. So what can be done if you did not plan for the possibility, and you or your loved one is confronted with an unexpected need for long-term care?
Fortunately, solutions are available to help those who failed to plan. A fast-growing area of long-term care planning is “crisis management.”
Strategies are available for financial and legal advisors to help families pay for the costs of long-term care. Among them: settling life insurance policy death benefits into a structured vehicle that will pay for the costs of senior retirement living and long-term care.
Related: Health insurers may pay for long-term care insurer failures
To put this concept in perspective, understand that there are fewer than 10 million long-term care insurance policies in-force today. By comparison, there are over 100 million in-force life insurance policies. Seniors allow about $100 billion worth of policies lapse or be surrendered annually.
In fact, 88 percent of life insurance policies sold will never pay out a death benefit because the owner will abandon it before they pass away. They do this without realizing it is their legal right to settle the policy while they are still alive for the present day value and receive a significant percentage of the death benefit as a cash-out payment.
After years of making premium payments, the owner of the policy can use it to help cover their retirement and long-term care costs. Would you abandon your home without selling it after years of making mortgage payments?
Of course not. And no one should abandon a life insurance policy after years of making premium payments if a life settlement is available.
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An individual can enroll funds from a life settlement into a tax-free long-term care benefit plan that makes monthly payments to any preferred form of care. (Photo: Thinkstock)
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Long-term care insurance is an excellent option for individuals young and healthy enough to qualify and who can afford to make premium payments for an undetermined number of years. There are also private-pay options for people who fail to plan and suddenly find they need to cover the expensive costs of senior living and long-term care.
Related: Report: life insurance policy lapse rates at a 20-year low
Any type of life insurance policy can be settled while the owner is still alive for a cash payment that will pay out the present-day value of the policy’s death benefit. With this realization of funds from a “dead asset,” a couple of options designed to protect and efficiently administer the money for long-term care expenses becomes possible.
An individual can enroll the funds into a tax-free long-term care benefit plan that makes monthly payments to any preferred form of care. A medically underwritten immediate annuity will provide a guaranteed income stream to help cover retirement and long-term care expenses for life.
These options address the immediate need to fund retirement living and senior care expenses. In fact, the older and more impaired the insured’s health condition, the more he or she will get when settling a policy and enrolling in either the benefit plan or the annuity.
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It is a morbid concept, but the older and sicker you are the more money you can get from a life settlement to help pay for long-term care costs. Long-term care insurance is purchased before a person needs senior care.
The younger and healthier people are when they purchase insurance, the lower the premium payments will be and the more option they’ll have. A person who would qualify to purchase long-term care insurance would be too young and healthy to enroll in the long-term care benefit plan or the medically underwritten immediate annuity.
By comparison, a person who qualifies to convert a life insurance policy into a long-term care benefit plan or medically underwritten immediate annuity would be too old or sick to buy long-term care insurance. If a person owns long-term care insurance and life insurance they can convert the life policy into either option and use both together to make sure they maximize their senior care options.
Related: Short-term care insurance gets its own regulator panel
Make sure clients understand all of their options when it comes to restructuring policies. (Photo: iStock)
Long-term care benefit plan
A woman had been researching assisted living communities for her mother. They had also been looking for financial assistance because the monthly costs were more than they could afford.