Category: Accelerated Benefits

Limitation of Chronic Illness Rider for Long Term Care: Recovery

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January 23, 2015

1:05 PM

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Accelerated Death Benefits, Chronic Illness Accelerated Death Benefit, Chronic Illness Rider, living benefits

Life insurance can also cover long-term care (LTC) expenses.  Most permanent life insurance plans above $25,000 in coverage offer a benefit option to cover LTC expenses. However coverage forks down two separate roads, so choose careful which one one to take.

These accelerated benefit riders come in two types: one is called a long-term care (LTC) rider, and the other is called a chronic illness rider. The LTC rider costs extra premium; most chronic care riders have no upfront charge. Charges will only occur if the rider is elected. So why pay extra for the LTC rider over at chronic illness rider?  What exactly are the differences between a chronic illness rider and a long-term care rider?

Long-term care riders:  unable to perform two out of six activities of daily living or cognitive impairment pays temporary and permanent claims.  “Qualified Long Term Care Insurance Contracts.” IRC 7702B; and also IRC101(g).

Chronic Illness riders: unable to perform two out of six activities of daily living or cognitive impairment; trigger: the condition must be expected to be permanent in order to qualify.  IRC 101(g)

With temporary conditions requiring LTC, and a conditions in a gray area as to its outcome being temporary or permanent, the chronic illness rider would not meet the qualification threshold.

The $64 question then becomes: how often are conditions requiring long-term care temporary? How often would a chronic illness rider leave the insured unqualified to draw a benefit?   From the research I’ve seen, about one third of the time.

The need for long-term care breaks down into a few health conditions: dementia and cognitive impairment, stroke, arthritis, cancer and accident or injury

Dementia and Cognitive Impairment:     both riders suitable

At some stage dementia would be identifiable via a cognitive test and a doctor would certify as permanent.  Not in any way a temporary or recoverable condition.

Stroke      Advantage: long-term care rider

The leading reason to pay extra for a LTC rider.   So many moderate to severe strokes would not be judged expected to be permanent, so a chronic illness rider could not be activated.

“Current statistics for stroke survival rates are:
10 percent of stroke victims recover almost completely.
25 percent of stroke victims recover with minor impairments.
40 percent of stroke victims experience moderate to severe impairments requiring special care.
10 percent of stroke victims require care in a nursing home or other long-term care facility.
15 percent die shortly after the stroke”

Arthritis     both riders suitable

temporary vs. permanent hard to discern statistically  statistics   If the arthritis was that severe to cause someone to be unable to perform 2 out the 6 activities of daily living, I doubt it would be deemed a recoverable condition.

Cancer    Both riders limited suitability, some advantage to the LTC rider, though 90 day elimination period would limit the LTC rider’s usefulness.

For end stage cancer patient, a life insurance terminal illness accelerated benefit rider which is included with nearly all life plans would be available regardless.


Injury/Accident     Advantage: long-term care rider, but a 90 elimination period limited its effectiveness

Mostly LTC situations are temporary.   note: falls among older adults

Another major factor in the decision should be that long term care riders are a reimbursement benefit. Chronic illness riders are indemnity benefits, i.e. cash benefits.  The reimbursement method, for qualfied LTC expenses, is inherently more restrictive.

Research:   CBO study   (pdf.)

A Chronic Illness Rider Gets Approved in California

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January 7, 2015

4:13 PM

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Chronic Illness Accelerated Death Benefit, living benefits

I thought I’d never see the day that a life insurance company would manage to get a chronic illness accelerated benefit rider approved California, but one major carrier announced it had yesterday.  This carrier does not like any mention of product details without prior approval, but it’s a carrier I highly recommend. Please contact me for full details.

Prior to this a few carriers like Nationwide offered Long Term Care Riders in California, but none had managed to get a Chronic Illness Rider approved.  See here for a full listing of carriers and pros and cons to each.  LTC riders are more comprehensive.  The main difference is that with Chronic Care Riders the condition must be considered as permanent, which wouldn’t be much help for a mild or moderate stroke or a broken hip.

However, most chronic illness riders have no upfront charge and could serve well if the situation warranted, a way of releasing a living benefit rather than having it locked away solely as a death benefit.

This opens up a very viable option for California life insurance consumers.  It’s very good new it finally happened.

Hodler - Valentine Godé-Darel im Krankenbett - 1914

Hybrid life insurance with LTC benefits: tap into or pass on

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June 6, 2014

10:07 AM

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101(g) chronic illness rider, 7702B Long-Term Care rider, Accelerated Death Benefits, In your 50's, In your 60's, Increasing Face Amount for cash accumulation, Indexed Universal Life

Watering-troughs_in_the_Wadi_Ghuzze_-_early_morning_Art.IWMART1518
Baby boomers postponing purchasing long term care insurance, despite what may be going on in their parents advanced age, have plenty of reasons to balk at conventional LTC plans.

One of the six primary reasons people do not buy long term care insurance.  pdf

Sixth, the structure of policies themselves (benefits
denominated in dollars per day, inflation risk of purchasing insurance for an event that is probabilistically far away, increases in premiums for everyone when insurance companies face insolvency, denial of applications) reduces purchase rates.

Potential premium rate increases, big ones, are are the glaring weakness of stand alone LTC plan. The track record of existing policies has not been good with the double digit premium increases over the past few years.

To the rescue for viable avenue of coverage, Hybrid life/LTC insurance offers rate stability. Guaranteed Universal Life (GUL) products lock in a fixed premium guaranteed for life.  The majority of these GUL products come with some sort of accelerated benefit targeted for long term care.

Hybrid Life plans provide a benefit one way or another. If you never need LTC coverage, your beneficiaries get the life insurance. Then if long-term care becomes a necessity, accelerate out a portion of the benefit. It may be only a small portion of the benefit ends up being needed; the rest can remain as a life insurance benefit.

Life hybrids are not perfect. Look for plans that specifically titled “long-term care” for more comprehensive benefit. Life policies with “chronic care” accelerated benefits are not as inclusive as their long term care benefit counterparts. With chronic care, the condition must likely be permanent. That benefit threshold would be a problem with for example a stroke, however debilitating a stroke might be, it may be considered to be recoverable. Many more conditions like a broken hip are not going to qualify for a chronic care benefit where they would if the plan’s benefits are full fledged long-term care.

There are other limitations that pull from the edges of rock solid LTC coverage. For example, the structure of benefit is generally limited by a monthly amount or daily maximum tied to the HIPAA per diem limit currently allowed by IRS rules, but just review carefully what’s optimal given the choices for plans and your situation.

Look for plans that have indemnity benefit, paid in cash, rather than reimbursement: better to receive a check than submit bills to be repaid.

How much coverage is enough?

Fifth, a sizable portion of the population has neither sufficient wealth to protect nor income to pay long-term care insurance premiums.

Most people have a desire to leave something to their children, or if nothing else, not be a financial burden on their children. It’s hard to judge how much money would be needed to cover LTC.  It really runs the gambit but coverage for $100,000 provides at least something. One life plan with chronic care starts at a $25,000 face amount.

With the exception of certain plans like Lincoln National’s MoneyGuard, hybrid life benefits do not provide inflation protection. LTC benefits are no higher than the death benefit. Chronic Care plans have no upfront charge, but reduce the benefit with a discount charge. How big a policy is enough if determined by the face amount: $100k, $250k, $1m?  The solution to choose a plan that builds cash value with an increasing face amount death benefit, either an Indexed Universal Life or a Current Assumption UL, to access cash value through policy loans or partial surrenders.

Hybrid life premiums with accelerated living benefits for LTC are affordable, not for or some worst case scenario like Alzheimer’s, but still something is better for nothing. There are hybrid life plans with $100,000 to $250,000 face amounts for people in their 50’s or 60’s with reasonable premiums. Chronic Care riders have no up front charge for the benefit. Check them out by reviewing the sample quotes by age on this website.

Costs of Long Term Care 2013 and Insurance Trends

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April 16, 2013

9:37 AM

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101(g) chronic illness rider, 7702B Long-Term Care rider, Accelerated Benefits, Accelerated Death Benefits, Chronic Illness Accelerated Benefit Rider, Chronic Illness Accelerated Death Benefit, Chronic Illness Rider, indemnity plans cash benefit, reimbursement plans repay expenses incurred

Genworth, a leading provider of long-term care insurance, for the last 10 years has published a very informative cost of care survey, and a they released their 2013 report last week.   The report breaks down cost by state and within the state by location, so it’s a useful for comparing LTC costs if considering a retirement location.   The executive summary  shows LTC costs remain relatively stable for home health care, in the 1% range for 5 year compound annual growth, but for facility care: assisted living, nursing home, 5 year costs increased well over 4%.  The average cost of a private nursing home room is $83,930 a year.  The lower cost increase trajectory of home health care, currently averaging $17 to $18 an hour, is better news overall since 70% of Genworth’s first time claimants choose home health care.

Though costs for long-term care followed a fairly predicable upward pattern, traditional LTC insurance was roiled by market forces. Major headwinds exist.  Prudential exited market for covering individuals.  Other carriers increased premiums significantly on existing policy holders and made a series of revisions to current products with stricter underwriting.

Price and product restructuring in 2013 offers some hope to stabilize traditional LTC insurance going forward, but inherent flaws to that kind of insurance exist.  The most fundamental: policy premiums are subject to rate increases. I became licensed for to sell LTC insurance in 2003 in an era when it was a still selling point that the major carriers had never had a rate increase on existing customers. Significant rate increases have now occurred, so the obvious conclusion is that the premium instability undermines the trustworthiness of that coverage for retirement planning.

Alternatives

Life insurance, hybrid benefit plans, are a viable alternative to conventional LTC insurance.  Many life insurance products offer chronic care benefit riders that accelerates a portion of the death benefit out of the policy if the individual qualifies as needing assistance in 2 out of 6 activities of daily living or for cognitive impairment.  Some flaws to traditional LTC insurance are not contained in many plan options: guaranteed level premiums, indemnity benefits i.e. payment in cash, higher disbursement levels. Other plan riders, depending on the product or coverage structure, are not as advantageous: fixed benefit, a capped monthly benefit cap, uncertain fees and charges to accelerate the benefit, reimbursement type benefits.  Cost of the chronic care rider is either up front with the premium or back ended at time of election.  Despite some inherent limitations to chronic care riders, one main advantage is that one way or the other either the coverage delivers a benefit, either as a death benefit or living benefit, unlike traditional LTC insurance which may never be required.

For couples one option is to establish life insurance policies on each other with the death benefit as a contingent asset for LTC for the surviving spouse.  If used in conjunction with a life policy with chronic care benefit the policies would serve a dual purpose.  Since woman tend to live longer and require more often LTC, coverage on the husband could likely help in that direction.

Annuities offer another alternative.  Some annuities have long term care riders, or set up an annuity to commence a payout at a given age.

Traditional LTC insurance 

Every situation is different, and it never hurts to compare, so if considering a traditional LTC insurance plan with lower premiums, look to what is called a short and fat structuring of a plan.  Short meaning number of benefit years, as in 2 or 3 years.  Fat meaning a benefit amount to cover major care under a worst case scenario.  Since the average private nursing home is nearly $84,000 annually structure the monthly benefit, not as a daily benefit to avoid a daily cap, to be $7,000 a month.  Since costs for private care is experiencing 4% to 5% compound annual growth, opt for inflation protection at 4% or 5%.  Inflation protection has been an inherent strength to traditional LTC insurance, but higher levels like 5% compound have been targeted for higher premiums and higher policy rate increases, so starting with a higher base monthly benefit with a 3% inflation protection should be considered.

How much is enough?

One basic concept to long-term care insurance is to establish a pool of money to cover its potential cost.  It now costs, on average nationally and rounding off, $84,000 a year for private nursing home care, and the average stay in a nursing home is 2.5 years.  That comes to $210,000.   Is that enough?  To cover health care or assisted living would probably be less.  The average life expectancy for a person with dementia is 4.5 years. That comes to $378,000 currently for private nursing care.

Life insurance with living benefits to offset out of pocket expenses over age 65

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September 5, 2012

4:31 PM

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Accelerated Benefit, Accelerated Death Benefits, Age 65, Altzheimer's disease, Alzheimer's, Chronic Illness Accelerated Benefit Rider, Chronic Illness Rider, dementia, memory loss

Medicare doesn’t solve all health care problems over age 65 especially in the last 5 years of life.   From ScienceDaily:

They measured total out-of-pocket healthcare expenditures in the last five years of life, and looked at these costs as a percentage of total household assets. More than three quarters of households spent at least $10,000, with spending for all participants averaging $38,688 in the last five years of life. Even more shocking was the fact that a quarter of participants made an average contribution of $101,791, and the same number spent more than their total household assets on healthcare.

Dementia was the most costly.

One solution is to buy life insurance with chronic illness benefits which allows the policy’s to be used long term care, if needed.

Hybrid life insurance plans covering home health care

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August 27, 2012

1:32 PM

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Accelerated Benefits, Accelerated Death Benefits, Chronic Illness Accelerated Benefit Rider, Chronic Illness Rider, Critical Illness Accelerated Death Benefit, hybrid life insurance policies, hybrid long term care insurance and life insurance, Indemnity Benefit, long term care insurance, long term care plans, Ohio

The Dayton Daily News has posted an article on the growth of home health care companies in Ohio.

“I think there’s been a real renewed interest in home care,” Thompson said. “I think people are looking for alternatives for care and again to remain in their homes I think [because of] the cost of moving into a facility, and they have to give up a lot to do that. I think independence is important to that population.”

Many life insurance plans at no extra upfront cost come with an accelerated benefit rider for chronic care.  Being unable to perform 2 out of 6 activities of daily living, like dressing or bathing, or cognitive impairment allows the policyholder to accelerate portions of their life insurance benefit for long term care.  The better plans allow an accelerated cash benefit.

These hybrid life and chronic care plans offer fixed premium, guaranteed for life.   They can be structured to build cash value and have an increasing benefit.  Once certified by a doctor as needing chronic care and a plan was devised that home health care was a suitable option, the accelerated benefit could pay for home health care services.  Any benefits not needed would pass on as a life insurance death benefit.

This kind of coverage is affordable and a very good solution for the associated costs of home health care.

Life insurance as a piggy bank for long term care expenses

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January 18, 2012

5:14 PM

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Accelerated Benefits, Accelerated Death Benefits, Chronic Illness Rider, life insurance and long term care, long term care insurance, long term care plans

Life insurance has a lump sum death benefit, but if serious illness strikes, a portion of it can be raided to provide living benefits.

Breaking Open The Piggy Bank
It’s called an accelerated death benefit.  Literally it’s accelerating out part of the death benefit from the policy before dying. Carriers charge a fairly high fee for this benefit.  Rules, caps and charges vary.

Most carriers include a terminal illness accelerated death benefit with no up front charge.  A handful of carriers offer a chronic illness accelerated benefit for long term care expenses.

Long term care benefit:  Cash Versus Reimbursement
Most LTC insurance are reimbursement plans with a daily or monthly maximum benefit.  Reimbursement is only for qualified LTC expenses. That’s a problem especially with home health care, the majority done by the spouse or one of the children.  Expenses associated with LTC vary depending on the the need, and may or may not be covered under a traditional LTC reimbursement plan.

Those types of limitations is why North American’s chronic illness benefit is so valuable and versitile.  It’s a cash benefit. You can accelerate up to 24% per year, and you can spend that money any way you please.  Granted the “discount fee” for cash acceleration is fairly large; the rule of thumb is a percentage the correlates with age.  At age 75, the discount fee is about 25%, at age 80 it’s about 20%.  But still that adds up to a significant amount of  money depending on the size of the policy.

Return of Premium
For those who want an money back opt-out option, Lincoln, Genworth and State Life offer life insurance/LTC coverage with return of premium.  Change your mind or an unexpected need comes up, you can terminate your coverage and get every dime of premium back.

What’s great about about this life insurance piggy bank, if no need for LTC arises, the beneficiaries get the full death benefit intact.

Images source: Wikipedia Commons

Long Term Care coverage: how long?

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December 6, 2011

11:23 AM

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Accelerated Death Benefits, Alzheimer's, Chronic Illness Rider, dementia, In your 70's, life insurance and long term care, long term care diagnosis, long term care insurance

After reviewing life insurance/long term care hybrid coverage options, the question comes down how much LTC coverage is sufficient?  There are two separate questions:  how much you’ll need, and how long will you’ll need it.  The best reference source on cost is Genworth’s annual cost of care survey.

For length of time, here are national statistics complied by a Montana LTC guide:

36%   stay less than 1 year

32.5%  stay less 1 – 3 years

14%  stay from 3 to 5 years

17%  stay 5 years or longer

Continue reading “Long Term Care coverage: how long?” →

Life Settlement: seniors watch out

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September 29, 2011

2:51 PM

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Accelerated Benefit, Accelerated Benefits, Accelerated Death Benefits, Cash Value, life settlement, Life Settlements, Living Benefits, Policy Review, Seniors, Stranger Owned Life Insurance, Term Life Insurance

I wrote in this blog about stranger-originated life insurance this Monday, and the next day Imperial Holdings, Inc., a company in the life insurance settlement business, had its headquarters in Boca Raton, Florida raided by the FBI.  No charges have been filed.  Life Partners, Inc., is another company in the settlement business, is also under investigation. Allegations for Life Partners focus on misrepresentations to their investors.

Regardless, seniors interested in a life settlement need to be wary of the life settlement industry.  Finra investors provides an excellent overview of the issues involved.

Make sure to contact an independent agent to review all your options before signing over ownership of your policy.  Ask your company for an in force illustration.   Explore options such as: Continue reading “Life Settlement: seniors watch out” →

Single Premium Life Insurance with long term care product review

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July 7, 2011

6:18 PM

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Accelerated Benefit, Accelerated Benefits, Accelerated Death Benefits, Alzheimer's, Chronic Illness Rider, Living Benefits, long term care insurance

There are several life insurance products on the market that focus on individuals or couples who have IRA, money market, CD’s, stocks, bonds or cash to roll over into a life policy whose primary purpose is to cover long term care, but also retain their investment principal. Notable are Lincoln National‘s “MoneyGuard” and Genworth‘s “Total Living Coverage”.  State Life has several asset based solution products to long term care.  I’ll focus in this post on their “Asset-Care I” product.  It’s a single premium whole life insurance providing a long term care (LTC) acceleration of benefits.  An optional continuation of benefits rider extends LTC benefits after the life insurance is reduced to zero.  It can be single coverage for an individual or combined joint coverage for a couple. In the quotes I’ve been reviewing, joint coverage for couples looks exceptionally good because the benefit applies to both insureds, and the cost for the single pay premium is relatively low.  There are surrender charges for the first 10 years starting at 11% and decreasing. This is a reimbursement LTC plan, meaning you are paid back for qualified long-term care expenses.

Essentially what happens is if you require long term care, after a 60 day waiting period the face amount of the life insurance begins to be accelerated out, and then when those funds are exhausted, the rider, if you choose it, begins paying benefits.  I’ve been studying this coverage for several days, and this product has very strong features, and could be the right choice for many individuals and couples if structured properly.

You want to set the monthly LTC benefit in the range of $6,000 a month based on Genworth’s 2011 Cost of Care Survey.   This assumes a worst case scenario of requiring nursing home care and having a private room.  The national median daily rate for this care is $213 a day, and that’s a 5.1% increase over 2010.

For this State Life product there are acceleration for the “base” or life insurance part of the coverage options of 2%, 3% or 4%.  For 4% it will accelerate out the life insurance benefit in 25 months. The 2% takes 50 months to accelerate. The 3% takes 33 months to accelerate.  In those months the benefit is a level pay out has inflation options of 3% simple, 3% compound, 5% simple and 5% compound.   How fast you accelerate out the base portion of the policy: 25, 33 or 50 months, and how much of an inflation option you add are crucial decisions.   Depending on one’s age, not choosing a strong base  inflation option can seriously under fund LTC coverage. 

After the base portion of the policy funds are drawn down, the optional rider has the option of either 3% compound or 5% compound inflation protection, and a lifetime benefit. Inflation protection of 5% compound is the gold standard for LTC coverage. Also a lifetime benefit is the holy grail of LTC benefits where many other plans over the last few years, traditional LTC insurance or hybrids plans like this one, the benefits have been capped.  The rider is it’s own separate entity which premium can be paid annually over the duration of the coverage, or you may choose a single pay. Premiums cannot be increased. Not so with traditional LTC plans. If you lapse your rider premium, there is a nonforfeiture benefit.  This provides a benefit for a shorter period of time.

This is a whole life policy with a guaranteed interest rate of 4%.  So it does build cash value, and if you waited out the surrender charges, the cash surrender numbers I reviewed were quite favorable, if you chose to surrender the policy.  Although surrendering a single pay runs into a tax issue since the policy is a MEC or Modified Endowment Contract.   The upside of this product, is that if you don’t need long term care, your beneficiaries get the life insurance.  For a joint policy holders, it’s a second-to-die policy.

So in all Asset-Care I from State Life is a well priced, benefit rich life insurance/LTC plan.  It would serve especially well for for lengthy long term care needs such as in Alzheimer’s.  Downside is the initial level benefit, and that’s it’s a reimbursement plan.  Upside are the options for 5% compound inflation and the lifetime benefit.  In comparison, many quoting scenarios Lincoln‘s MoneyGuard only allows, at best, a 3% compound inflation option.  It’s hard to find any LTC coverage that’s not reimbursement, but North American‘s chronic care rider offers a cash benefit.

Disclaimer:  In reviewing The State Life Insurance Company’s Asset Care I, all information is correct to the best of my knowledge.   For complete details on this product please contact The State Life Insurance Company, a One America Company, directly.