Extended Care Options that Might Surprise You
The most detrimental undertaking for a well-designed income and financial plan without Long Term Care insurance is an extended care event. November Is Long-Term Care Awareness Month and sometimes we become aware of this risk much too late in our lives. Long Term Care insurance along with life insurance seem to be the two products in our industry no one wants to purchase when they are able (can qualify medically), but everyone wants and needs once they are unable to qualify. With that in mind, isn’t it important for us to have conversations about extended care with our clients? Or how about the next generation, our client’s children and grandchildren?
We probably know by now the statistics relating to LTC and the fact that almost everyone is going to need it at some point. We can also spit lines that Harley Gordon taught in the CLTC courses (Certification in Long Term Care) over and over. CLTC teaches how to play out the situation with a client or prospect “IF” an extended care event were to occur rather than to tell a couple in their 60s that there is nearly a 100% chance they will need care. Studies show that most clients do not purchase LTC because of statistics. This is because most of us, especially men, never believe they are part of the statistic.
We also know by now in order to get Long Term Care insurance, you must be healthy. Insurance companies do not want people with health risks. Because of that, it can make it difficult to place a “true” (Tax Qualified) LTC policy for your client. Even life-based hybrid products have gotten more difficult with underwriting. I would like to tell you about many of the alternatives on the market that can help you cover this almost certain risk.
Life Products with Chronic & Critical Illness Riders:
This section includes many life products on the market. Yes, you must still qualify for the life insurance, but they only underwrite for mortality, and not for morbidity (LTC). These products include National Life Group (LSW) (chronic and critical), Allianz Life Pro+ Advantage (chronic), single premium products like National Western Life (chronic), and a new carrier Asset recently brought onboard just for this type of risk, Ameritas (FLX IUL), which offers both chronic and critical care riders unlike any other in the industry.
One of our challenges with using a chronic or critical illness rider on a properly funded IUL policy is that it is usually not going to be used! That’s right, most of the time when a client looks at gaining access to traditional chronic or critical rider benefits, they DO NOT USE THEM. This is because of the functionality of such riders and how the insurance companies charge you for them when you use them. They discount the death benefit at the time you want to access cash. This discounting can be a significant cost to your client. So, what most clients end up doing at this point is accessing loans from cash values as that generally provides more overall value. On average if a chronic or critical event happens after year seven of owning a traditional max funded IUL policy, it will be more beneficial to take tax-free loans compared to accessing chronic benefits. We now have an answer for that!
Introducing Ameritas IUL FLX, which offers a unique way to access living benefits. In short, they pay out a full lump sum cash payment when you qualify, and they do not discount your death benefit. They simply put a dollar-for-dollar lien on your policy when you use these benefits. If you are not familiar with this product and would like to know more please take a look at a webinar I did on the product here https://register.gotowebinar.com/recording/7861376614882662401
Never hesitate to call our life team for illustrations or questions. Also take a look at our most current top life products guide.
Annuity Products with Home Health Care (HHC) Enhancements
Because you still have to medically qualify for life insurance, another alternative that can provide an enhanced income stream when a client needs care (even in the home) is a Fixed Indexed Annuity (FIA) with an income rider that enhances (usually doubles) for a period of time if the client is not able to perform two of the six Activities of Daily Living (ADLs). These products generally only require that you are not currently needing care or in a nursing facility already. We have seen a tremendous amount of traction with products like these because many of these products are used as income products and the home health care enhancement is just an added bonus. In other words, if your client ends up in a unique situation where they do not need care, the product can still function as well as many other FIAs. There is generally a 2-3 year waiting period after purchasing the product before such benefits can be activated but there are some very good products on the market that accomplish this. Products like Allianz’s ABC (income any time) or the Allianz 222 (Income after ten years), F&G’s Safe Income plus, or the Global Atlantic Income 150. These products not only provide guaranteed income but will double that guaranteed income stream if you need care. They do not double forever but can provide a very large sum of money in those years that you need care. In the case of Allianz, they not only double but also provide an inflation hedge. To see more details, take a look at our top annuity picks page. Never hesitate to contact our annuity team with questions or to have us run illustrations.
Bringing it All Together
If you were at our most recent Rewards Trip in Laguna and Santa Barbara last month you heard about many of these products and also heard a quick story from Asset Advisor, Mike Conroy, on how he utilized not one or two of these products but four different products for a single client and a total of eight different accounts. Not every client will need four different solutions and eight different insurance contracts, but in this specific case it made sense. We were able to do the following for a 48-year-old widowed client with two special needs children.
- Ameritas FLX IUL – Designed to maximum fund (minimum death benefit). Provided a $250k initial death benefit along with future tax-free income as longevity insurance (as I like to call it) if she lives a long life and needs that income to offset inflation. Her plan was to access this cash value last, because the benefits of not using the policy for income are just as good as if you use it, and, as we know, IUL only provides more benefit the longer you allow it to grow. The design of their “lien approach” on living benefits was crucial to this part of the plan.
- National Western Single Premium Life – This is an undersold product in my opinion. It has a 100% return of premium from day one. This can and should be used for clients’ liquid assets. S&P cap rates as high as 9% with a guaranteed death benefit, chronic illness, and terminal illness rider. This provided the client with the early liquidity she might need, increased her death benefit and more importantly provided her with a rate of return higher than where she had her money – in the bank.
- Athene BCA (FIA) with FER MAX: Not mentioned in this article but we are certainly seeing more of it. This is not only a great lump sum death benefit option but a fantastic approach for taking RMDs. The death benefit base reduces dollar for dollar by your RMD withdrawal. This can be used for income, accumulation, and death benefit. His client had several IRA accounts and a ROTH that were repositioned into this product. This provided the client with an efficient way to pass on money to her children, take income in the future and grow her money safely.
- Ameritas Term – Ameritas also has a term policy with living benefits – If you watch the webinar linked above you will get more insight to it. While they do not have the lien approach on their living benefits for their term policy, this was able to provide more early protection in case of catastrophic death for this young, widowed client and her special needs children. All at a low cost.
Our passion is to help design a plan that is right for your client. Give us a call to discuss any cases you are working on to understand your options.