Our brokers at Hyers and Associates specialize in health insurance and can help you sort through what’s best when it comes to traditional long term care policies.
If we only knew what was in our future, decisions would be so much easier.
You don’t want to spend money on something you don’t need. And you don’t want to need it and then be unprepared. Let’s take a look at some of the pros & cons of LTC insurance.
The Pros
- Peace of mind is the main reasons most people are interested in a traditional long-term care policy. You don’t want to worry about what will happen to you and your loved ones with such a big expense lurking.
- No one wants to be a burden on their children, families, friends and loved ones. Many parents would prefer to have long term care insurance cover the costs (and time) associated with prolonger health care needs.
- Flexibility in coverage is an advantage for long-term care insurance policies. For example, you can choose how much coverage you want to have per month, or how long you’d like to be covered.
- Start coverage in your 50’s or 60’s. The earlier you start coverage on a long-term care policy, the more likely you’ll be able to pass the required medical underwriting. Once you have been approved the policies are “guaranteed renewable” and cannot be taken away unless you don’t pay your premiums.
- For lower rates apply for the insurance when you are younger. Rates can increase as the years go on, however. This is why some of our clients purchase fixed payment hybrid long term care annuity and life insurance plans.
- Leaving your spouse with the assets she or he might need and an inheritance to you families. There’s not much that eats up estate like prolonged LTC expenses. Insurance solves that problem and protects your life’s work for the ones you want to provide for.
- Most plans include inflation protection. We know that the future cost of care is only going to increase. Have a policy that compounds at 3-5% each year is almost a necessity.
The Cons
- Passing medical underwriting can be difficult, especially if you wait too long. Once pre-existing conditions show up, they may keep you from qualifying for the insurance. About 30% of the people that apply for the insurance fail the health assessment and/or receive much higher rates.
- There is a long list of health issues that insurance companies use to decline applicants. There’s an even longer list that will cause your rates to be more at onset. Sometimes it’s not just one thing, but the combination of several risk factors.
- The cost of long-term care insurance can be prohibitive, especially for those in the middle-income bracket. Rates have been increasing. Long-term care insurance is disappearing for middle-income people as rates are too high. The high risk is causing many insurance companies to stop offering long-term care insurance.
- If you qualify for long-term care benefits, there is frequently a period of time before your benefits can begin. This is called a “waiting period’ and it acts like a deductible. Most policies have a 90 day wait, but some are flexible and let you choose the time. Shorter durations usually increase the cost of the policy.
- Most policies are capped in how much they will pay out. You get to choose the duration and benefit pool of your policy, however. It is unusual to see plans that pay indefinitely due to cost and risk.
- If you do not use the policy, or if you cancel the policy, you and your family may not get any money back. This issue is difficult for many after paying premiums for many years. That’s why hybrid policies have really taken off in the marketplace.
For Other LTC Options and Strategies, Call Us!
If you are interested traditional long-term care insurance, we can help you. We can also show you hybrid insurance policies – both life and annuity driven coverage. Other strategies can include using your Health Savings Account (HSA) or Medicare Medical Savings Account (MSA) to cover your potential long-term needs.
If you are considering a traditional long-term policy or are interested in what other options are available, we’ll be happy to walk you through all your options. Contact us today to learn more.
Category: Long Term Care Insurance, Retirement Planning
Tags: insurance decisions, long-term care, senior care
We get older every day and as we do, we have our eye on retirement. However, along with retirement, there is also a concern over the possibility of getting sick and needing long-term care.
To rest assured you’ll be taken care of when that time comes, the team at Hyers & Associates can help you sort through long-term care insurance options. We’ll help you compare costs and benefits of the best plans available.
Who Needs an LTC Insurance Policy?
At age 65 one in four individuals will need up to 2 years of long-term health care. Some people may need up to 5 years of long-term care. Still others will need care for many years.
Nursing home rates continue to rise and can run up to $100,000 a year, so having a long-term care plan is a smart thing to have in place. These popular policies also pay for care in your own home or an assisted living facility.
What is a ‘Hybrid Policy?’
Hybrid insurance combines a long-term care policy as a part of another permanent insurance policy product, such as a whole life insurance policy or annuity.
With most hybrid policies, when long-term care is needed the policyholder would withdraw funds to cover the needs from the hybrid insurance policy. Once that money has been exhausted the insurance company would then take over the long-term care coverage.
Policies provide benefits until your pool of money runs out, but some plans available for purchase will pay benefits for a lifetime. You can also add inflation protection to most plans in order to keep pace with the rising cost of care in the U.S.
Advantages of a Hybrid Policy
If you decide to want to cancel your hybrid policy, there is usually an opportunity to recover some – or all – of your premiums paid. With most traditional LTC care policies, should the policyholder pass away before using the policy, the premiums paid would be lost.
The money would just be gone and that’s bothersome, but not so with hybrid LTC. These plans can provide monetary benefits to you, your heirs or your estate.
These are the benefits of a hybrid policy:
1) Receive Premiums Back
With a hybrid policy usually, you can get most – or all – of your premiums back after the surrender charge period.
2) Tied to Whole Life Insurance
Also, with a hybrid policy tied to a whole life insurance policy, in the event of an early death, the value of the policy will be left to the named beneficiary. Annuity plans work the same way.
If you are not in need of the care, you or your beneficiaries will benefit from the polcu and any growth it provides. This brings great peace of mind. And hybrid life plans can avoid income taxes as well.
3) Greater Chance of Being Accepted
Lastly, a hybrid policy can be advantageous in that underwriting ca be avoided. Someone having minor health problems may have a difficult time qualifying for a traditional long-term care policy – or their premiums may be increased.
If long-term care is made a part of another insurance policy there is a greater chance that the person will be accepted.
4) No Future Premiums
The best part about hybrid plans is you can pay for them in one lump sum – or just a few fixed premiums. You’ll know exactly what your total costs will be up front.
This is much different than traditional plans that can (and will) raise your rates in the future. Many consumers have had to later surrender their old, traditional plans because of cost increases.
When Should You Start Looking for LTC?
The best time for looking for a long-term care insurance policy is when you are in your 50’s or 60’s. You must be healthy enough to qualify for the insurance, however.
The older you get, the greater your chances are of being rejected for this type of insurance. You want to apply before any signs of poor chronic health conditions occur.
We Can Show You Several Options
The team at Hyers & Associates can show you many options that are available for long-term care hybrid insurance policies. Give us a call and we can help you to choose the best policy for your situation. Don’t wait until you have no options available.
The longer you wait to make a decision on your long-term care, the fewer options you’ll have. Call us today and we can help you find peace of mind knowing you’ll be taken care of.
Category: Long Term Care Insurance, Retirement Planning
As people age, they may develop health conditions that require daily care for an extended time. Often health insurance does not cover all these costs, such as assistance with daily activities like bathing, at-home care, nursing home or adult day care, and home modifications for the disabled. Consider the benefits of investing in a long-term care insurance policy.
Know About Your Current Health Insurance Coverage
Most health insurance policies provided by an employer will not cover every aspect of long-term care. Medicare covers a nursing home or at-home care for a limited period, depending on the conditions. A long-term care insurance policy is meant to cover necessary expenses when other insurance does not. Older people looking for essential coverage should consult with a knowledgeable insurance agent about Medicare Supplement Insurance policies to fill in the gaps.
What to Consider When Choosing Long-Term Care Insurance
Purchasing long-term care insurance is less costly when you are younger, and older people might not be able to get this coverage – due to age requirements or health condition. Over time, the premiums increase. Choose an affordable policy that fits into the budget.
A person with a lower income may qualify for Medicaid, which covers nursing home and at-home care. But there are stringent eligibility requirements, including having little or no resources. Talk about long-term care needs with family and friends who might be able to help and be realistic about what they can do. Work with an accountant about possible tax and financial benefits of getting long-term care coverage, as well as ways to protect your wealth and family.
Basics About Long-Term Care Insurance
Most people buy individual long-term care insurance plans from an experienced insurance agent. Others get coverage from employers, organizations, and joint or state programs.
An agent can guide you through this process to select the best option. Consult with an insurance agent about long-term care insurance now rather than later as policies may not cover preexisting conditions. Waiting until you are in declining health could mean the condition is not covered by the policy.
And discuss your all of your options with your preferred agent. Traditional (pay as you go policies) were most popular just a few years ago, but hybrid, asset based LTC policies are gaining traction. You can purchase a hybrid plan in one lump sum – or with fixed annual premiums – and eliminate future premium increases. Best of all, your heirs will inherit your hybrid annuity or life insurance policy if it’s never used.
Extent of Coverage
Each long-term care insurance policy differs in its coverage and requirements, such as using services from a certain professional or agency or allowing independent care providers, including family members. Verify the type of coverage meets your unique needs.
Care coverage may include a nursing home, adult day care, assisted living facilities, nursing and other care, home health care, and home modification such as ramps. Carefully review the policy to ensure you get the coverage you need.
Be aware of policy limits and how much they will pay for these services. And there might be some exclusions, such as treatment for mental illness and alcohol and drug abuse. Verify your plan is “tax qualified” so that it has to follow all guidelines set by the government.
When Benefits Are Triggered
With most long-term care insurance, certain conditions must happen before the policyholder receives benefits. For example, the policyholder must be unable to perform designated activities of daily living (ADL). Typically, when a policyholder requires assistance with two or three ADLs, the benefits are “triggered.”
Inquire if the policy has a waiting or elimination period before the benefits start to be paid. And consider the increasing cost of medical care in the future. The cost of care today is sure to increase in ten years. Inquire if there is an option to purchase increased coverage in the future.
Few people want to think about becoming chronically ill or disabled as they age. However, having the right care makes this situation easier. Choosing long-term care insurance today can protect your personal and financial well-being in the future.
Thank you for reading our blog! How can we help you? Contact us today.
Category: Long Term Care Insurance
What images do talks of retirement bring to mind? Ones of freedom? Extended vacations in your favorite spots? Time for that long-put-off hobby? Often, thoughts on retirement center around the pleasurable expenses. Long-term health costs and their related less-than-ideal circumstances fail to factor into the conversation. Long-term care insurance falls off the radar.
Furthermore, current health fails to predict the need for long-term care. Unexpected illness or injury, such as a fall, often causes this need to arise. In fact, 70 percent of individuals age 65 today are expected to require long-term care, according to U.S. government estimates. While Medicare covers your treatment for illness or injury, it fails to pay expenses related to daily care in nursing homes and through home health aids.
Long-Term care expenses quickly deplete retirement savings. A semi-private room runs $85,775 yearly with privacy raising the cost to $97,455. For just 44 hours per week of care, you will pay a home health aide, on average, $49,192 yearly. These figures give a significant push to consider long-term care insurance in your retirement planning. But, when is the right time to consider long-term care insurance? The short answer? Now. Let’s look at what this means.
Factors to Consider With Long-Term Care Insurance
Discussing this topic with family, friends, and insurance or financial planning professionals helps you gather valuable insight. The time to begin these conversations is now — before long-term care needs arise. As you consider long-term care insurance, a few factors impact your decision.
Medicaid Rules
When an individual’s savings deplete due to long-term care expenses, Medicaid may be an option. However, know the rules. You need to understand what assets must go to qualify you for this coverage. Plus, long-term care financing plans impact your eligibility. With Medicaid regulations varying by state and changing over time, doing your research becomes imperative. LongTermCare.gov offers an excellent place to start.
Your Family
Talking with family about your long-term care preferences and their involvement puts the future into proper perspective. Family willing to take care of you in your home or theirs help defray future costs. However, work considerations may make home health aide assistance or adult daycare centers (and accompanying insurance needs) a reality. If you do not live near family, the need for long-term care insurance rises.
Your Home
If your future care vision includes staying at home, the layout and structure of your house come into play. Even a stellar home health aide cannot overcome a poor floor plan. Take into account the condition of your home. Can it be modified, if needed, to accommodate changes in your health? Is the budget for those changes factored into your plans? Does the structural integrity of your home indicate this to be a wise move?
Costs
The majority of ongoing care needs fall into the category of extended nursing home stays or non-skilled living assistance. Unfortunately, Medicare does not cover these expenses leaving 55 percent of Americans relying on this coverage without a plan — or lumped with the 50 percent of Americans paying for this care out of pocket. Get a realistic picture of long-term care costs when considering insurance.
Budget
With the rising costs of long-term care and related insurance premiums, tying these costs to your budget is a distinct and primary consideration. Unfortunately, the insurance which supports your ideal long-term care plan may be unaffordable. This truth holds for many Americans. Talking with a financial planner or an insurance agent lays out realistic options given your financial situation. Long-term care calculators also offer insight.
The Right Time to Consider Long-Term Care Insurance
Now is the time to start the conversation. Now is the time to seriously research and consider long-term care insurance. Do not procrastinate believing you have plenty of time. Starting early makes for smart decision-making and adds up to savings.
Start Early for Smart Decision-Making
The earlier you start researching long-term care insurance, the better. Finding the right policy to meet your needs and budget requires time. Contact an insurance expert, do your research and make an informed decision. Needing to decide as circumstances escalate leads to inadequate and often expensive solutions.
Start Early for Savings
Long-term care policy premiums often prove expensive. Starting to shop for long-term care insurance well before you need it saves you money. Purchasing a policy at a young age lowers your premium. However, you must factor in your retirement income and its ability to handle the payments. A “hybrid” insurance policy which includes death benefits and annuities may help as well. However, financial planners prove wary of this option.
Stop Your Procrastination
Now is the time. Today is the day. Research long-term care insurance. Consider your unique situation. Purchase a policy, if that is best. And, mark this weighty task off your to-do list before it becomes a stressor.
Thank you for reading our blog! How can we help you? Contact us today.
Category: Long Term Care Insurance
If you’re looking for asset based long term care plans with supersized growth opportunities, you’re in the right place. There are now two companies offering indexed LTC annuity plans.
One America State Life issued the first hybrid long term care annuity and EquiTrust recently released its proprietary version. Both credit interest based on the performance of certain indexes – like the S&P 500.
This is good news for those interested in comparing hybrid annuities. Owners can now benefit from increased returns and larger payouts for long term care expenses.
The Evolution Of Indexed Hybrid Annuities
First, there were simple fixed annuities that worked much like bank CD’s. Then there were fixed-indexed annuities that offered enhanced growth prospects without exposure to downside market risks. Next came hybrid long term care annuities that could only increase in value based on declared fixed interest rates.
But now, finally, there are indexed hybrid LTC annuity accounts. These policies offer the best of all worlds. We’ve written about hybrid annuities extensively and think they offer a great alternative to traditional long term care. You can read more about hybrid products here.
We’ve also written extensively about indexed annuities and what investors can expect from these popular accounts. You can learn more about indexed accounts here. Until recently, there hasn’t been much competition for hybrid LTC coverage.
Consumers who are interested these products now have options. These unique accounts offer the ability to grow principal – and long term care benefits – by more than what’s offered by fixed interest policies.
Popular Features Of Indexed LTC Annuity Accounts
The most important feature is index-linked growth.
Indexed annuities offer opportunities to earn more when markets are going up. In great years, double-digit returns are possible.
But when the market goes down, your annuity value does not go down with it. Your interest growth is locked in each year and cannot be lost in future years. The annuity credits interest on your policy anniversary and then resets for a new year.
There is a fixed account available as well. You can invest in both fixed and indexed accounts in the same year. To diversify, you can invest a portion of your premium into the indexing accounts and the remaining funds in the fixed account. You can reallocate in future years on your policy anniversary. There are no charges/fees for reallocation.
When your annuity grows, your long term care benefits also grow. That’s the goal. Invest in a policy that keeps up with inflation and provides substantial LTC benefits in the future. Many of our clients prefer growth options. This way they have more control over growth and can maximize future benefits.
These accounts from EquiTrust and State Life also allow for joint ownership. This eliminates the need for funding two policies when only one might be needed. You and your spouse can combine funds and put more money to work. And both spouses can draw LTC benefits from the annuity at the same time. That is a unique feature among many asset based LTC policies.
Other Important Features:
- LTC benefits are available in all settings like: your home, assisted living, nursing home, etc.
- Continuation of benefits (COB) rider allowing you to double your benefit pool
- Lifetime benefit option that pays for LTC no matter how long you need it
- Optional inflation protection can be purchased on COB rider
- Increased benefits pools for healthy behavior
- Accepts non-qualified funds, IRA’s and existing annuities
- Tax-free withdraws for qualified care (IRA’s excluded)
- Accepts only single premium deposits – cannot be funded over time
What If I Don’t Use My Policy For Long Term Care?
The answer to that is one of the primary benefits of asset based LTC insurance. If you don’t use or need them, then they pass to your named beneficiaries. This is much more advantageous than paying into a traditional long term care policy each year. And most importantly, you never have to worry about rates going up with a hybrid annuity. Your single premium pays for everything all at once.
And of course, you could always cash in your annuity or transfer the account value to another policy if you wish. It is a ten-year plan, however, so it would be subject to surrender charges in the first ten years other than for death.
Taking withdraws for long term care purposes is never subject to surrender fees. LTC benefit withdrawals can begin after one year. The annuity offers ten percent free withdrawals each year penalty free as well. Most of our clients avoid withdrawals (other than for long term care) as they want their annuity to grow each year.
Contact Us For Quotes, Illustrations And Information
These unique annuities from State Life and EquiTrust offer a lot of what our clients are looking for. Policy growth, larger benefit pools, wealth transfer, joint ownership, and healthy rewards are just some of the high points.
Our independent insurance agency specializes in hybrid long term care and asset based insurance planning. Please contact us for comparisons, illustrations, and information today!
Category: Annuities, Articles, Long Term Care Insurance
Through our independent agency, you can compare hybrid long term care insurance quotes and illustrations from One America State Life Insurance Company. They offer both single and joint annuity and life plans to fit most situations.
We offer their hybrid annuity and life plans direct to consumer. Using our expertise and guidance, we can help your decide which type would be most appropriate for your long term care planning while also explaining what you can count on from your coverage in the future.
Linked long term care plans are growing in popularity and for good reason. These policies offer liquidity and leveraged benefit pools to their owners while also providing residual benefits to the policy’s beneficiaries.
One of their most attractive features however is the elimination of ongoing premiums. Like other carriers offering hybrid long term care, One America State Life has products that can be funded with a single premium or a set number of fixed deposits. Unpredictable lifetime premiums can be eliminated with their asset based long term care policies.
One America State Life Long Term Care Annuity Policies
Depending on where you live, State Life will offer one or two types of hybrid annuity plans. Both annuities offer different benefit lengths to choose from as well as guaranteed policy growth and inflation protection options.
Most of our clients have a number in mind when they contact us. For example, someone might want to know how much a $100,000 investment in a LTC annuity would generate in current and future long term care benefits.
Other times, we reverse engineer plans to find out how much premium it would take to create a desired daily benefit for a known number of years. It’s not a one size fits all approach with our agency. Still in other cases, our clients are wanting to know what their benefit pools will look like if an existing annuity is rolled over into their hybrid product.
And that’s one of the advantages of hybrid annuity accounts from One America State Life. They will accept non-qualified annuity monies on a tax free basis. This is called a 1035 tax-free exchange and can be a valuable strategy for long term care planning.
First, the 1035 exchange (annuity rollover) does not create a taxable event and second, all qualified distributions for long term care from the new annuity are not taxable either – even the gains! This would include the gains rolled over from the previous annuity.
One America State Life Hybrid Life Insurance For LTC
In some cases, a hybrid long term care life insurance plan is most beneficial for our clients. One America offers several versions of this products and in some cases life policies will provide additional leverage when compared to a hybrid annuity.
When you are shopping for asset based long term care, it is our opinion that one of the most important factors is leverage. In other words, you want to create the largest pool of money that can be used to cover long term care costs with the least amount of money invested.
Hybrid life insurance policies can be advantageous for those who are younger and in good health. The benefit pools can be larger and may require a smaller deposit when compared to some hybrid annuities.
And life insurance benefits have the advantage of being income tax free at passing. If the policy is never used for long term care purposes, then it will pay income tax free to the named beneficiaries of the policy.
One America State Life offers both hybrid life and annuity polices that our clients find attractive when planning for future long term care expenses. We can help you understand how both work and which may be of more benefit to you and your family.
Joint Hybrid Long Term Care Covering Both Spouses
If there is one segment where One America bests the competition, it is with joint long term care plans. Both their annuity and life plans can be purchased on joint lives.
Joint plans eliminate the need for a husband and wife to purchase two different policies – or try to connect their plans with a shared type of rider. Both insured spouses have access to the same pool of money at the same time with One America.
This may also provide additional leverage – especially if one spouse needs more long term care benefits than the other. Why invest $75,000 in two separate policies, when you can place $150,000 in one? With one plan, both spouses will have access to a larger pool of money if it’s needed. And both spouses can access this pool of money at the same time for long term care.
Inflation Protection For Guaranteed Policy Growth
One of the biggest concerns we hear from long term care shoppers is the cost of care. In many parts of the country, facility cost are approaching $200 a day. It does not take long for some LTC policies to be depleted at this rate.
In order to combat these high costs, One America State Life offers inflation protection options that can be purchased and added on both their life and annuity plans. The most common choice is a 5% compounding rider that will guarantee an increase in the daily benefit each year.
Benefit lengths and pools can be tailored to meet most requests. Most of our clients choose plans that will last a minimum of 5-6 years, but longer terms are available. And some policies offer a lifetime benefit pool for those who want maximum benefits that will never run out.
Policies are sold to age 80 and some medical underwriting is required for most plans. Like all things insurance, it is best to investigate and purchase coverage while you are younger and in good health. The longer you wait, the less leverage you can buy and the more difficult medical underwriting can become.
Contact Us For Quotes And Information
Hyers and Associates is a full service, independent insurance agency specializing in hybrid long term care plans. We offer hybrid insurance coverage from One America State Life and several other carriers. Contact us today to discuss your best options.
Category: Long Term Care Insurance, Retirement Planning
If you are researching hybrid long term care policies, then you may want to consider the Lincoln MoneyGuard life insurance product. In this post, we will discuss how this policy works and provide examples of the benefits it will provide now and in the future.
Addressing Long Term Care Using Hybrid Insurance Plans
Asset based planning for long term care is very popular and for good reason. These policies allow consumers to leverage their invested dollars several times over to create a tax-qualified long term care policy. All of this can be done with a single premium – or a fixed number of premiums.
Hybrid LTC plans are advantageous as they eliminate indefinite yearly premiums, future premium increases and paying tens of thousands of dollars for something the insured may never benefit from. Life insurance and annuity plans providing tax-qualified LTC benefits provide growth, access to the invested premium, and a residual death benefit for the owner’s beneficiaries.
Lincoln Financial MoneyGuard Hybrid Long Term Care
All hybrid LTC plans are built off of either an annuity or a life insurance policy. MoneyGuard is built off of a guaranteed universal life insurance chassis. Your total benefit pool for long term care will be determined by factors including: your age, gender, selected benefit period, inflation protection and deposit amount.
Policies can be funded with a one-time single premium or through installment payments of 2-10 years. All things being equal, your life insurance policy (and LTC benefit pool) will be larger if the funds are deposited over shorter amount of time or through a single premium. You can choose between 2-7 year benefit periods, but the policy will last longer than your chosen term if you are not using the full allotted long term care benefit amount each month.
Both 3% and 5% compounding inflation options are available for purchase so the policy benefits can keep up with the rising costs of health care. When inflation protection is added, policies can create a sizable future benefit pool for the insured.
MoneyGuard offers an 80% and 100% return of premium feature should the insured want/need their premiums returned. One of these two options is chosen at purchase and will affect the overall benefit pool.
Polices are available for purchase between ages 40 and 79. Applicants over age 79 will not be accepted. Spousal discounts are available – even when the other spouse does not apply or is not accepted due to poor health. MoneyGuard can only be purchased on one life however – so spouses will each need to purchase their own plan. Plans cannot be linked.
MoneyGuard Hybrid Life Insurance Examples
Let’t take a look at a hypothetical 60 year old couple in Ohio who each invests $100,000 in a 6 year MoneyGuard policy with a 3% compounding inflation rider and 80% return of premium rider.
| Lincoln MoneyGuard |
Male Age 60 |
Female Age 60 |
| One-Time Single Premium |
$100,000 |
$100,000 |
| Minimum Plan Length |
6 years |
6 years |
| Inflation Option |
3% Compounding |
3% Compounding |
| Initial Monthly Benefits |
$5,808 |
$5,264 |
| Initial Annual Benefits |
$69,700 |
$63,170 |
| Initial Total Benefits |
$450,848 |
$408,606 |
| Same Couple 10 Years Later |
Male Age 70 |
Female Age 70 |
| Monthly Benefits After 10 Years |
$7,579 |
$6,868 |
| Annual Benefits After 10 Years |
$90,943 |
$84,422 |
| Total Benefits After 10 Years |
$588,255 |
$533,138 |
| Same Couple 20 Years Later |
Male Age 80 |
Female Age 80 |
| Monthly Benefits After 20 Years |
$10,185 |
$9,231 |
| Annual Benefits After 20 Years |
$122,219 |
$110,768 |
| Total Benefits After 20 Years |
$790,565 |
$716,493 |
| Same Couple 25 Years Later |
Male Age 85 |
Female Age 85 |
| Monthly Benefits After 25 Years |
$11,807 |
$10,701 |
| Annual Benefits After 25 Years |
$141,686 |
$128,411 |
| Total Benefits After 25 Years |
$916,481 |
$830,612 |
As you can see, the 3% compounding inflation significantly increases the benefit amounts provided by this policy in the later years. After 20 years, a $100,000 premium has purchased well over $700,000 in long term care benefits for each spouse. This is 7X worth of leverage and estate protection. A 5% inflation rider would illustrate even higher numbers.
And if the policy benefits are never used, their is a residual tax-free life insurance benefit to the named beneficiaries. While this number fluctuates, it will never fall below a certain amount. In the example above, the life insurance minimum death benefit for the husband is $139,400 and for the wife is $126,339.
And what if the policy has been exhausted completely through long term care withdraws? The Lincoln MoneyGuard is unique in that it still provides a small life insurance benefit. In the example above, it is $6,970 for the husband and $6,316 for the wife.
What If I Change My Mind And Want My Investment Back?
At purchase, Lincoln National Life allows the owner to select one of two options: 80% return or premium or 100% return of premium. The LTC benefit pool will be larger when the 80% feature is selected. The entire 80% of funds are returnable once they have been deposited.
The 100% return of premium feature vests over 5 years. After year one, 80% of your premium is available penalty-free and this number increases by 4% each year until 5 years have passed. After 5 years, all invested funds can be accessed penalty-free. Loan features and other options are included that allow the owner to withdraw (and return) smaller amounts if needed. Like most life insurance policies, you have access to your deposited funds.
About Lincoln National Life Insurance Company
Any time you are investing large sums of money, you want to know that the company backing your policy is going to be around when you need them most… and that they will make good on their promises. Lincoln Financial has been offering insurance and investments since 1905 – well over 100 years.
They have an A+ rating with AM Best which is the second highest rating available. They offer life insurance, annuities, group benefits and several other lines of insurance which helps them to diversify their risk. They are a strong and reliable company.
Hyers and Associates, Inc – Insurance and Asset Planning
We are an independent insurance agency specializing in asset based hybrid long term care insurance. We work directly with the Lincoln Financial MoneyGuard product and several others. We can help you find the policy that best suits your LTC planning needs.
Category: Long Term Care Insurance, Retirement Planning
It’s an interesting question. In our experience offering hybrid long term care coverage, the answer is: It depends. Some of our clients benefit more from an annuity and others from a hybrid life insurance plan. We will discuss the pros and cons of each below.
Some of the answer can also be found in your own personal comfort level with insurance. For better or worse, many LTC shoppers are more familiar with annuities and therefore gravitate toward these policies.
Sometimes life insurance plans have negative (and in our opinion undeserved) connotations. There are a lot of insurance “experts” who will tell you to buy term life insurance only, but that’s short-sighted.
You should keep an open mind and not approach your research with a bias. Buying hybrid long term care insurance is all about maximizing leverage and creating tax efficiencies. In some cases life insurance plans will offer more leverage on your invested dollars. These policies also provide additional tax advantages.
The Case For Hybrid Long Term Care Life Insurance
There are several different carriers offering hybrid life insurance. It’s important from the start to know there are two very different distinctions when it comes to these policies. Some life plans sold today simply offer an accelerated death benefit. In other words, you get some access to the death benefit amount if you meet certain requirements. In our opinion, these plans are more life insurance than long term care.
The second types of policies are true hybrids and are more long term care than life policy. We will be focusing on these types of coverage. They offer investment leverage, inflation protection, spousal options, and are considered qualified LTC plans. A qualified LTC plan will offer tax advantages when the policy is established and also when it pays out benefits to the owner(s).
Life Insurance Is Income Tax Free At Passing
Hybrid life insurance plans can be desirable simply because they offer tax advantages at passing. Any growth in a hybrid annuity is taxable as income at passing, but that’s not the case with life insurance. Should you invest a $100K single premium in a life plan and create a $250K death benefit, that $250K would not be taxed as income at your death. That is a big advantage life insurance policies offer over annuities.
Life insurance policies can also provide more leverage in some instances. When purchasing long term care insurance, one of your primary goals should be maximizing your benefit pool. Life insurance can accomplish this more efficiently when compared to some, not all, annuity plans. If the life policy provides a $250K pool of long term care benefits and the annuity only $230K, and all other things are equal, the hybrid life plan might be the better choice.
But insurance companies have more on the line when it comes to life insurance. If you purchase and qualify for a plan today and pass away tomorrow, then the insurance company will come out on the losing end of the transaction. Because of this, medical underwriting is more stringent with hybrid life plans when compared to most annuities. The immediate increase in your leveraged dollars requires more due diligence on the part of the insurance carrier.
In a nutshell, hybrid life insurance plans are popular for their tax-free death benefits, increased leverage and larger long term care benefit pools, but they have more medical underwriting.
The Case For A Hybrid Long Term Care Annuity
Hybrid annuities deserve a seat at the table when you’re considering asset based long term care. They also offer leveraged payouts and yearly growth opportunities through interest gains. While they don’t offer an income tax free death benefit like life insurance, they can still be purchased as tax-qualified plans.
And this is one of the significant factors that make hybrid annuity accounts more desirable than life insurance plans. Annuities will accept transfers from other annuities on a tax free basis. This is called a 1035 tax free exchange. While you can perform this same transaction with the cash value in life insurance plans, it is rare for someone to have $100K cash value in a life insurance plan that they want to transfer over to a hybrid policy.
Hybrid Annuities – Leveraging Tax-Deferred Assets
It’s not as rare for someone to have $100K in an annuity. As an agent, oftentimes I will hear that this same $100K is earmarked for long term care expenses.
That’s great, you’re planning ahead. But why not leverage those dollars 2 or 3 times over and watch them grow each year? That way, if you spend your $100K, you can then spend another $100K-$200K of the insurance company’s money.
And that’s what LTC planning is all about. Protecting your assets, leveraging your dollars and spending the insurance company’s money – not yours – is paramount.
You might ask, what happens to the taxable gains in an old annuity when it’s exchanged for a hybrid annuity account? The investment growth is not taxed upon transfer (when using a proper 1035 exchange) and the growth is not taxable when the payouts are used for long term care purposes. It’s a win win.
And as we stated before, some LTC shoppers are simply going to be more comfortable with annuities. They are more of a known quantity with less moving parts and may simply provide more peace of mind. There’s nothing wrong with that. Don’t let someone put your hard earned dollars into something you are not comfortable with over the long haul.
The Case For Any Hybrid Long Term Care Insurance Plan
If you are planning for LTC with an asset based approach, then either a hybrid annuity or life insurance plan will offer meaningful estate protection. They will both serve the purpose of leveraging your invested dollars and providing a significantly larger pool of money.
And more importantly, these plans can be funded with a one-time single premium so you never have to worry about future premium increases like you would with traditional long term care policies. And most hybrid plans also offer a return of premium – or at the very least access to your investment should you need it.
Additionally some hybrid plans also offer joint coverage. In other words, both you and your spouse can be covered under one policy. With traditional long term care, that’s usually not the case. Those policies may offer a shared care rider, but you have to use your policy up first before tapping your spouse’s policy. Joint hybrid policies allow both spouses to draw from the same pool of money at the same time. Hybrid plans allow you to invest less in one policy than more in two.
Hybrid plans also accept 1035 tax free exchanges from existing insurance policies like annuities and life insurance. This can help you leverage an under-performing asset while also providing estate protection for you, your spouse and your heirs. No longer will you need to self-insure for such a potentially large out of pocket expense.
Contact Us To Compare Hybrid LTC Quotes And Illustrations
Hyers and Associates is an independent insurance agency offering LTC quotes and coverage direct from several carriers. We can help you compare plans side by side in order to find the hybrid policy that best fits your needs and goals. Contact us today for a free consultation.
Category: Annuities, Articles, Long Term Care Insurance, Retirement Planning
The Pension Protect Act (PPA) was passed by Congress in 2006 and became effective in 2010. The law provides tax advantages for consumers who wish to purchase a long term care policy using a non-qualified annuity policy.
The provision in the I.R.S tax code allowing for this is called a 1035 tax free exchange. Consumers can use this provision in different ways to purchase a long term care policy with an annuity on a tax advantaged basis.
What Is the Significance Of The Pension Protection Act?
When consumers contact our agency, they generally want to know more about the Pension Protection Act and how it might help them. In short, long term care expenses (specifically Medicaid costs) are major outlays for federal and state governments
The PPA encompasses a lot, but one major purpose was to incentivize the purchase of LTC insurance. Federal and state governments would much rather have consumers and insurance companies pay the costs of extended care than these same consumers spend down their assets and then turn to Medicaid for assistance. (Medicare only partially pays for the first 100 days of skilled nursing care, but nothing more.)
The Tax Benefits Of The Pension Protection Act
The PPA helps consumers who are interested in purchasing long term care in several ways. The primary advantage is the tax incentives provided by this law.
It also offers flexibility for those with existing assets earmarked for long term care expenses. In a nutshell, the interest gains from non-qualified annuity accounts can now be used on a tax-free basis to either fund or purchase a traditional or hybrid long term care insurance policy.
(A non qualified annuity is one where the initial investment was made with post-tax dollars. This is unlike a qualified annuity – like an IRA or 403b – where the investment was made with pre-tax dollars).
Using A Non-Qualified Annuity To Purchase Traditional Long Term Care Insurance
If an individual purchases long term care by simply writing a check from his or her bank account each year, then there are no taxable benefits or deductions. However, if a non-qualified annuity is used to make this same purchase, then the interest gains from the annuity can be used tax free.
There are two ways to do this. The first method is to purchase an immediate annuity and send all (or a portion) of the systematic yearly payments to the insurance company offering the LTC plan. An immediate annuity provides payments consisting of principal and interest – so long as the interest is used to pay for the LTC policy, then it would not be taxed as ordinary income. In some cases the annuity and the LTC insurance can be bundled and purchased from the same company.
The second method is to make yearly withdraws from an existing non-qualified deferred annuity that was purchased some years ago. For example, a $150,000 annuity (with a $100,000 cost basis) would have $50,000 in deferred gains. The owner could execute a partial 1035 exchange (taking out a portion of the $50,000 that would normally be taxable) and use those funds to pay for the LTC policy on a tax-free basis each year.
There are some rules that must be followed in order for these two strategies to work. The LTC policy must be “tax qualified” (most are) and the LTC provider must be able to accept the funds from the annuity subject to the I.R.S. 1035 exchange rules. If the annuity owner takes constructive receipt of the payments first, then these strategies will not work. It is important to work with a knowledgeable agency like ours when setting up these types of transactions so as to avoid taxable mishaps.
Transferring To A Hybrid Long Term Care Annuity
When interest rates are low, then the savings described above may not be very significant if the annuity is not generating large amounts of taxable interest. However, the 1035 exchange rule can be very beneficial if an owner of an existing annuity wants to exchange their traditional policy for a hybrid long term annuity.
Hybrid annuities are somewhat new and they are gaining popularity very quickly. Many consumers are worried about purchasing a traditional long term care policy because of costs, rising premiums and the idea that it may never be needed. Hybrid LTC annuity accounts help to avoid these issues.
Consumers can exchange an old non-qualified annuity account for a hybrid long term care annuity using the same 1035 exchange rule. When setup properly, this exchange generates no taxable gains. Using the example above, the $50,000 gains would transfer tax free to the new hybrid policy.
But wait, there’s more. The $50,000 gains could be withdrawn later on a tax free basis to cover the insured’s long term care expenses – like care in an assisted living facility, nursing home or the annuity owner’s own home. Additionally, hybrid long term care annuities will leverage the deposits by a factor of 2-3X over providing the potential for much larger LTC benefits than the policy from which they came.
This can be a very good strategy for those who have an existing annuity earmarked to pay for long term care expenses as well as for those who wish to self-insure. Why take taxable withdrawals from a non-qualified annuity to pay for LTC expenses (i.e. nursing home care) when you can take tax free withdrawals from a hybrid LTC annuity?
(It is important to note that there is some medical underwriting required with hybrid LTC annuity accounts. Consumers must purchase them while in reasonably good health – otherwise they can be declined as is the case with any health insurance policy. It is best to be proactive when purchasing LTCi.)
The Pension Protection Act & Life Insurance Cash Value
While somewhat less common, consumers can also use the cash value in their life insurance policy to fund a long term care policy and still be in compliance with the PPA. This would also be done using the I.R.S. approved 1035 exchange rules.
Again, it’s important that the long term care insurance company be able to accept the funds from the life insurance company as a 1035 exchange. This could be done as a lump sum (thus surrendering the life policy) or through a systematic withdrawal. When taking withdrawals from a life insurance policy, it’s important to understand how the integrity of the policy will be affected.
Contact Us For Quotes, Illustrations And Assistance
First, we must stress that the agents at Hyers and Associates are not tax advisors nor is this article intended to offer actionable tax advice. While we are familiar with tax rules and regulations as they apply to insurance policies, it is always advisable to talk with your own tax advisor before making exchanges.
That being said, we can help those who are interested in purchasing long term care insurance using non-qualified annuities and life insurance. The Pension Protection Act is a valuable piece of legislation incentivizing these unique transactions. Contact us today to learn more.
Category: Annuities, Articles, Long Term Care Insurance
Asset based long term care is quickly growing in popularity as those nearing retirement plan for potential long term care costs. There are only a few companies marketing long term care annuity policies and Mutual of Omaha is one of them.
Their policy is called the Living Care Annuity. The primary advantages of their hybrid annuity plans are the absence of ongoing premiums and the leverage gained on your invested dollars.
What Is A Long Term Care Annuity?
Simply put, a hybrid long term care annuity policy is an ordinary deferred fixed annuity with a declared fixed interest rate. The account grows every year through compounding interest. Assuming no interest is withdrawn, the interest gains will accumulate tax deferred.
The difference with a hybrid annuity is in the leverage it provides for long term care costs. The Mutual of Omaha annuity will leverage the invested dollars three times over for nursing home, assisted living, adult day care, home health care and several other LTC types of expenses.
Mutual Of Omaha Living Care Annuity Example
Let’s take the hypothetical example of $100,000 invested in a hybrid annuity. The $100k would grow each year based on the declared interest rate and would otherwise function like a traditional fixed annuity while in deferral.
However, the $100k would create a $300,000 pool of of money that can be accessed by the owner for LTC expenses two years after the policy has been purchased. The $300k pool of money would then be available over a minimum of 6 years for a total of approximately $50k per year – plus the interest growth.
If the annuity policy was accessed for long term care, the owner would essentially spend his or her own money for the first two years and for the next four years, s/he would be using the insurance company’s funds. That is to say, that after the policy has been spent down to $1 in value, Mutual of Omaha then pays the claims up to the individual policy limits.
The $100k initial investment will grow year over year based on the declared interest rate. Let’s use a hypothetical declared fixed interest rate of 3%. The $100k would now be worth $106,090 after two years.
Leveraged 3X over, this equals $318,270. Divided over 6 years, the policy would pay $53,045 per year for a minimum of 6 years or $145.33 per day. The policy funds could last longer if less than $53,045 was used in any given year. This is not a “use it or lose it” type of policy.
LTC Rider Costs And Medical Underwriting Provisions
There is an annual cost for the long term care rider provided by the policy. This cost is subtracted from the declared interest rate each year.
Using another hypothetical example: If the declared interest rate of the annuity policy was 4.0% and the LTC rider costs 1.0%, then the annuity would credit 3.0% for that given year and the example above would be accurate.
Like most annuity policies and long term care riders, interests rates and rider costs can change based on economic conditions, but only within certain reasonable limits outlined in the policy at onset.
There is medical underwriting associated with this policy. There are twelve pre-qualifying questions as well as a required phone interview for the applicant. If you have been turned down for other types of long term care coverage, then you may not qualify for this policy, but generally speaking, hybrid annuities require less medical underwriting than traditional LTC policies.
You must prove insurability before you will be able to purchased this hybrid annuity and the policy must be in-force for at least two years before benefits can be accessed for long term care expenses.
Adding Long Term Care Inflation Protection
Mutual of Omaha does offer additional inflation protection on the Living Care Annuity beyond the yearly interest growth. The annual fixed interest annuity growth will account for some inflation, but possibly not enough.
For those who want additional protection, a 5% compounding inflation rider can be added to the long term care rider at an additional cost to the policy. Inflation protection must be purchased at onset and cannot be added later to the contract.
Who Might Benefit From A Long Term Care Annuity?
There are potentially two primary benefactors of a long term care annuity; the owner and the beneficiaries.
Owners retain control of their investment and can always withdraw the invested funds (subject to any applicable surrender penalties) at a later date. The accumulated interest is available monthly although most owners tend to reinvest their gains in order to grow the policy each year.
Assuming little or no long term care is needed, then the owner has an asset that can avoid probate and be passed on to his or her beneficiaries. This policy can be appealing for those who are concerned about paying for traditional long term care insurance that may never be needed.
Long term care annuities can also be appropriate for those with an existing annuity policy. Consumers can exchange existing annuities for the Mutual of Omaha hybrid policy on a tax-free basis through what is referred to as a 1035 tax-free exchange.
This can be advantageous for those with significant deferred income in an existing fixed annuity or for those who wish to exit an under-performing or volatile variable annuity account.
Tax Treatment Of Annuity Rider And Policy Payouts
The Living Care Annuity is designed to be a tax qualified policy. The cost of the LTC rider has been setup in order to avoid income taxes. The future policy payouts are also designed so as not to create any taxable income to the owner – even if deferred income was transferred in from an old policy.
It is always a good idea to consult with a tax consultant about specific questions regarding the taxability of certain long term care policies. This post is not to be misconstrued as tax or legal advice.
Summary
Hyers and Associates, Inc. is a independent long term care, annuity and insurance agency. We represent several traditional and hybrid long term care providers direct and can help you find the policies that best suit your needs.
Category: Annuities, Articles, Long Term Care Insurance
The Pension Protection Act of 2006 became law in January of 2010. The law offers several provisions to incentivize the purchase of long term care insurance coverage.
One component of this law allows you to use taxable annuity dollars to purchase a long term care insurance policy.
This provision is useful if you have significant tax-deferred accumulation in a non-qualified annuity. You can use those dollars to purchase long term care coverage on a tax-deferred basis.
LTC Insurance And The Pension Protection Act
First, it is important to know that Medicare and/or supplemental policies do not pay for extended LTC stays. And government run Medicaid will only cover these costs once you have spent down most of your estate.
The Pension Protection Act allows you to use annuity (and life insurance) polices as a tax efficient means to purchase LTC insurance. There are a couple of ways to implement this strategy and it will mostly depend on whether you own an existing non-qualified annuity account.
Tax Advantages Of Periodic Annuity Payments
A non-qualified annuity is one where the invested principal has already been taxed.
The interest (or investment) gains within the annuity have grown on a tax-deferred basis and are only subject to income tax when they are withdrawn.
So long as the account has not been annuitized, then any money that is withdrawn from the annuity would be taxable until all of the growth has first been distributed. Put another way, the gains come out first – not the principal.
However, the Pension Protect Act allows you to withdraw your investment gains tax free in order to purchase long term care insurance. If you invested $100,000 in an annuity and the policy has grown to $120,000 – then you could withdraw the $20,000 on a tax free basis to pay for a long term care insurance policy.
This is a valuable benefit for those who have invested in an annuity account and wish to protect their estate by purchasing long term care insurance. It is important to note however that the new law does not allow for tax free withdrawals from qualified (IRA, 401k) annuities to purchase LTC insurance.
Tax Free 1035 Exchange To A Hybrid Annuity
Hybrid annuity policies that include a provision for long term care also benefit from the new law. If you own an existing non-qualified annuity with any tax deferred growth, then you can execute a 1035 tax-free exchange to a new hybrid annuity account.
This exchange will protect the gains in your old, surrendered annuity from income taxes on any level. Your invested dollars will be leveraged two to three times over in the hybrid annuity for long term care benefits. Additionally, any tax-deferred dollars paid out for qualifying care will be tax free.
Hybrid annuity policies are quickly growing in popularity with those who want to maintain control of their assets, but who also want to leverage their invested dollars in the event that extended care is ever needed. Global Atlantic and One America/State Life are two companies that are competitive in the hybrid annuity market place.
These plans are also popular as they require less underwriting than traditional LTC coverage. They are easier to qualify for if you have any preexisting conditions or health concerns.
What If I Don’t Already Own An Annuity?
If you don’t already own a deferred non-qualified annuity, then you can still purchase one. You could invest a lump sum in a deferred annuity and withdraw only the interest, on a tax free basis, to pay for a long term care policy. Or you could pay for a long term care policy using an annuitized single premium policy.
If you wish to to have LTCi sooner than later and you don’t want to risk the insurance company declining your application because of health issues, then an immediate, annuitized plan might work best.
Deferred annuities are favorable when the owner can wait several months to a year for their interest to accumulate before purchasing the LTC insurance plan.
Using An Immediate Annuity For Systematic Payments
An immediate annuity is exactly that; one that begins payouts to the owners almost immediately – usually after only one month, but no longer than one year after the deposit has been made. Thus, an immediate annuity makes systematic payouts of principal and interest each payment cycle.
The principal would not be taxed under any circumstances, but the interest can be taken tax-free so long as it’s used to fund a long term care policy. The payouts can be setup for a set number of years or even a lifetime, but in all cases this method of systematic payments is known as an annuitization.
There are several ways to use an immediate annuity. One strategy is to invest in one that will make systematic equal payments for 10 years and then use those dollars (tax free) to purchase a 10 year paid-up long term care policy.
The annuity payment stream could also be setup for a lifetime. In most cases however, there is no guarantee that your LTC insurance premiums will not increase sometime in the future. This is why some consumers purchase a 10 year paid-up policy.
At any rate, your insurance broker (us) can tell you exactly how much you need to invest in any type of annuity to cover the premiums for your chosen long term care coverage.
Qualified Long Term Care Partnership Plans
People are living longer and medical inflation is extremely high. Governments on all levels are running huge deficits and Medicaid liabilities are a significant reason for their indebtedness.
In response, many states have recently passed laws establishing partnership qualified long term care plans that further add financial incentives to purchase extended care insurance. In a nutshell, many state governments will allow you to protect your estate up to an equal amount of purchased long term care insurance.
That is to say, if you purchase a policy that provides $250,000 in benefits and you end up using the entire amount, then your state cannot legally force you to spend down an additional $250,000 from your estate before Medicaid qualification would be available.
Regardless of the amount of money spent by your insurance policy, Medicaid, and/or your estate – you will have protected at least $250,000 that can be passed on to your beneficiaries.
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In summary, federal and state governments are providing much needed tax and planning incentives for those who wish to purchase long term care insurance.
Whether you are using deferred or immediate annuity policies, hybrid accounts, or partnership plans – there are several tax advantaged strategies designed to protect your family and your estate from the exorbitant costs associated with extended care.
Hyers and Associates, Inc is an independent insurance agency specializing in annuity accounts and long term care insurance plans.
Category: Annuities, Articles, Long Term Care Insurance, Retirement Planning
Ohio has passed legislation allowing for partnership policies to encourage the purchase long term care insurance (LTCi).
Only a few insurance companies offer these plans, but not all LTCi policies offered today are partnership qualified.
By owning a qualified plan, insureds can be eligible for Medicaid benefits through the state without depleting all of their assets.
How Does The Ohio Long Term Care Partnership Plan Work?
In a nutshell, consumers can protect the same amount in personal assets as each dollar paid by the insurance company for long term care related benefits. In this way, consumers do not have to spend down their assets to state-mandated levels to qualify for Medicaid.
For example, if $250,000 worth of long term care insurance is purchased by a consumer and later exhausted, then the insured can retain $250,000 and still qualify for Medicaid benefits.
Other variables such as income and net worth will factor in before Medicaid benefits are immediately available, but the $250,000 in this example is protected from recovery for the insured, spouse and/or the heirs. In effect, the State of Ohio is rewarding those who plan ahead.
Who Should Consider Partnership LTCi Coverage?
Given the cost of extended care (the average in Ohio is over $85,000 a year), most should consider some form of LTC insurance. However, consumers with a moderate net worth and income may benefit the most from a qualified partnership plan. If a couple with a net worth of 3-4 hundred thousand dollars each purchases an average size policy, then they can protect their home and life savings for each other and their heirs.
An average policy can pay $175 a day (365 days a year) for four years. The total ($175 x 365 days in a year, multiplied by 4 years = $255,500.) This hypothetical couple could shelter $511,000 from Medicaid recovery should they exhaust their policy maximums.
Higher net worth couples (say those worth one million or more) might benefit less from a partnership plan if they purchased a similar policy as the one used in the example above. While they could shelter $511,000 between the two of them, there would still be attachable assets if the $511,000 was exhausted.
These clients might consider larger policy maximums, hybrid LTCi or traditional coverage that can provide benefits for at least five years. Five years is a typical look-back period. That window of time allows owners to shelter assets from Medicaid recovery.
Additional Long Term Care Benefits & Riders
Almost all LTCi coverage contains inflation protection. This allows the overall benefit amount to grow over time and will increase the amount of sheltered assets for the insured. Typical inflation riders will increase the daily benefit amount by 3-5% yearly.
Be advised that not all inflation riders will qualify for partnership coverage. In most cases, the inflation rider must compound for life. Ones that stop compounding after a set number of years will not qualify in Ohio.
Additionally, couples can purchase a rider that allows them to share each other’s benefits should one exhaust their own policy maximum. Should one spouse need care and spend all of their benefits, then that spouse can tap into the healthy spouse’s benefit pool. These are but a few of the more popular riders available with LTCi plans.
How Common Are Partnership LTC Plans?
There are several states offering these types of policies and a handful offer reciprocity. That means you can purchase your policy in Ohio, then receive care in another State.
Currently, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Idaho, Indiana, Kansas, Minnesota, Missouri, New York, Nebraska, North Dakota, Oklahoma, Oregon, Pennsylvania, South Dakota, Texas and Virginia all offer partnership long term care insurance in various forms. Rules and regulation will differ between states.
Contact Us To Compare LTC Quotes & Illustrations
In summary, those who wish to ensure a legacy to their heirs while also providing peace of mind to their families should consider a long term care insurance policy. New partnership-approved plans allow consumers to guarantee that at least a portion, if not all, of their estate, is sheltered.
Savvy consumers can pass on sizable sums to their beneficiaries without spending down all of their assets. This will allow for Medicaid benefits to begin earlier while retaining assets for a healthy spuse and/or children.
Consumers can learn more about partnership plans and coverage options at the Ohio Department of Insurance’s website.
Category: Long Term Care Insurance, Retirement Planning
One America/State Life offers this hypothetical case study. It details an innovative way to pay provide funds for long term care expenses while also creating a tax write-off under the Pension Protection Act.
While many seniors own deferred annuity contracts, some are unsure what to do with underperforming or mature contracts. If you would like to discuss your personal situation, please contact us.
A case-study example:
Client: Marjorie Jones, age 71
Status: Married to husband Ned (age 71) Situation: Marjorie is owner/annuitant of a non-qualified annuity out of surrender charges purchased. The current cash value is $103,500 (the cost basis/premium paid was $65,000). Their annuity has not been used for income, and based on cash flow projections, will not be required for income. The couple has no long-term care coverage, but has identified this annuity as a source should expenses be incurred.
Option 1: Keep the annuity where it is
Pros:
- No surrender charges apply for withdrawals Cons
- Withdrawals for any purpose would be taxable to extent of gain in the contract
Option 2: Move to Annuity Care ® (or other LTC Annuity Policy)
Pros:
- Withdraw money for qualifying long-term care expenses tax-free
- Using eligible person provision and add husband Ned to the policy for long-term care purposes
- Money withdrawn for qualifying long-term care expenses is tax-free as a reduction of basis
- 10 percent free withdrawal provision for non-LTC withdrawals
- Can purchase optional Lifetime LTC provision with guaranteed premiums
Cons:
- New contract with new surrender charge period
- Have to be in good or fair health to qualify (medically underwritten)
Withdrawal example 1:
Short LTC claim situation:
What if Marjorie (or Ned) had a $3,000 per month LTC expense for six months? How would this impact:
1. Their existing annuity for the short term:
Any amount of money that comes out of their existing annuity, regardless of purpose, would be taxable to the extent of gain in the contract. Since they have a gain of more than $18,000, the entire amount withdrawn would be taxable.
2. Annuity Care for short term:
If the expenses are eligible for LTC payment under the Annuity Care contract, it could be withdrawn without having to pay taxes on the $18,000. This, and any future LTC withdrawals, would not be subject to taxation.
1. Withdraw example for a longer LTC claim situation
What if Marjorie (or Ned) had a $3,000 per month LTC expense for three years (36 months)? How would this impact:
1. Their existing annuity for the long term:
Any amount of money that comes out of their existing annuity, regardless of purpose, would be taxable to the extent of gain in the contract. The money withdrawn would be taxable to the extent of gain, up to the cost basis of $65,000. So, at least $43,000 would be taxable to the Jones family ($3,000 x 36 months = $108,000 – $65,000 cost basis = $43,000 taxable).
2. Annuity Care for long term:
If the expenses are eligible for LTC payment under the Annuity Care contract, it could be withdrawn without having to pay taxes on the $108,000. This, and any future, LTC withdrawals would not be subject to taxation. If the optional Annuity Care Plus extension of benefits option/rider was purchased, it will continue to provide LTC benefits after the depletion of Annuity Care’s base coverage due to LTC withdrawals.
It is always important to review your overall financial picture before reallocating existing assets. However, if you have an old annuity that is not accessible for long-term care expenses, or cannot provide you with tax-advantaged access to your money for those expenses, it could be time to ask your insurance representative about Annuity Care from The State Life Insurance Company.
1. Tax-free LTC withdrawals are available effective January 1, 2010, as stated in the Pension Protection Act law of 2006. Marjorie and Ned are fictitious and not the individuals in the picture. The specifics of all cases are hypothetical and were used for illustration purposes only.
Annuity Care is a single premium deferred long term care annuity, medically underwritten and issued by The State Life Insurance Company in most states across the U.S. It is a medically underwritten product. All who apply may not qualify. It may credit additional interest to amounts withdrawn for qualifying long-term care expenses.
There are other comparable policies on the market with companies like Global Atlantic and Guaranty Trust Life. We can help you compare all of your options at our independent insurance agency, Hyers and Associates.
Category: Long Term Care Insurance
The newest addition to the LTC marketplace is the long term care hybrid annuity account. This product functions exactly like a fixed annuity, but it has a long term care multiplier built into the policy.
There is no premium rider associated with this medically underwritten annuity policy. Put another way, there is no annual cost to the insured unless funded over a finite period of years. Most consumers fund their policy with a single premium, but not all.
Understanding Hybrid Annuity Accounts
A portion of the internal return in the fixed interest contract is used to pay for the long term care benefit rider. Total long term care benefit payouts are calculated based on the amount of premium deposited into the policy. The larger the deposit, the more leverage benefit that is purchased.
Hybrid annuities will declare a fixed interest rate every year – say 3% for example. The interest rate could be higher or lower depending on economic conditions during the lifetime of the policy. There will always be a minimum guaranteed rate which the policy cannot fall below – say 2% for example.
If the annuity is yielding 3%, then .60% might be used to pay for the long term care insurance benefit rider each year. Thus, the account would grow by 2.40% in this example. (It is understood that 2.40% may not keep up with medical inflation so most hybrid carriers also offer additional inflation protection for purchase. Inflation protection can also be purchased with a lump sum.)
Leverage Dollars for Long Term Care Expenses
Once the annuity has been funded, the underwriting insurance company will offer a leveraged payout of the initial premium. For example, a policyholder who invested a $100,000 single premium into a hybrid annuity that is leveraged 3x over would have purchased $300,000 in future benefits.
It is important to note that many carriers have a waiting period (usually one year) before the policy could be accessed for LTC benefits – thus, like all things insurance it is wise to plan ahead.
Additionally, the LTC benefits cannot be taken out over one or two years. Hybrid annuity providers usually require that the funds be taken out over a minimum number of years. In other cases, only a certain percentage of the leveraged policy value will be available each month.
Using the example of the $300,000 leveraged policy, if the minimum distribution length was 6 years, then $50,000 would be available each year for LTC benefits. However, this number is subject to change as the policy grows by the declared interest rate each year and also if additional inflation protection was purchased.
Funding a Long Term Care Annuity
There are only a couple of insurance companies offering long term care annuity policies at present and not all plans are available in all states. Some policies will allow for joint ownership while others may require individual ownership.
Hybrid annuities must be purchased with after tax, non-qualified funds or with the proceeds from another non-qualified annuity. The cash value of a life insurance policy can also be used in some cases. Most insurance companies will not accept qualified rollovers (IRA, 401k) as these accounts usually require future distributions or RMDs.
Occurring at 70 1/2, RMDs can upset the balance of the annuity and the long term care proceeds. Additionally, the proceeds will still be taxable upon withdrawal whether they were used for LTC purposes or not. Qualified money does not work well for you or the IRS with hybrid plans.
Advantages of a Linked Insurance Policy
The main advantage of a hybrid account whether it’s an annuity or a hybrid life insurance policy is the insured can maintain control of their invested dollars. With traditional LTC policies, premiums might be spent for several years with no benefit to the insured if extended care is never needed.
With a hybrid plan, however, the policy has value to the insured for withdraws, loans and/or if it is simply cashed out to be invested elsewhere. If none of the above occur, then the policy can be willed to a beneficiary.
In this way, a small amount of interest has been lost to pay for the LTC benefits, but the accumulated value of the policy will belong to a spouse, children, or any other named beneficiary.
Request Quotes and Information
Hyers and Associates, Inc. is an independent insurance agency specializing in long term care and annuity policies. We can help you compare and contrast several linked and hybrid accounts in order to maximize leverage and benefits.
Category: Annuities, Articles, Long Term Care Insurance, Retirement Planning
