Category: Chronic Illness Accelerated Death Benefit

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

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.