Leveraging Cash to Pay for Long-Term Care

New ways to plan for potential long-term care expenses continue to be developed. There are many more ways available to secure their own and their families' financial independence than most people realize.

We discussed in previous issues the problems traditional long-term care policies have had in the past. See our November 2012 issue, for example. Those problems are why many people seeking protection from long-term care (LTC) expenses turned to annuities and life insurance policies with long-term care riders. These approaches often allow you to leverage your cash, providing more in LTC benefits than the money you put into the policy. Yet, unlike traditional LTC policies, you have access to your money and benefits are paid to your heirs in many cases. The policies often are ideal when you have cash invested conservatively for emergency needs such as LTC.

Previously, I presented you with details of annuities with LTC benefits. See our July 2013 and October 2014 issues. I also showed you permanent life insurance policies with LTC riders in our January 2014 and November 2015 issues.

The most recent innovation is a long-term care/life insurance combination policy. This differs from life insurance with an LTC rider in that this is an LTC benefit first and foremost, not life insurance first with an LTC benefit. It also differs significantly from traditional LTC in that it has a return of premium feature and also offers a minor life insurance benefit to beneficiaries. The LTC benefits are more than you will find in most LTC/Annuities or life insurance policies with the LTC rider.

Here's an example of how the latest version, called SecureCare, works.

Max and Rosie Profits are both age 60. Rosie wants to avoid being a burden on her children if Max isn't around and her health declines. Rosie has $100,000 invested conservatively earning a low interest rate. She repositions that cash by transferring it into SecureCare. The policy offers some options I discuss below. From those options, Rosie chooses 3% simple interest inflation protection. She also elects to extend the base benefit period from two years to another four years.

With SecureCare, if Rosie passes away soon after her deposit, her beneficiaries would receive $116,830 of tax free life insurance benefits. If Rosie needs long-term care right away, after a 90-day elimination (waiting) period, she can elect to receive a maximum monthly long-term care benefit up to $4,868 for the next 72 months (six years), for a total care payout of $350,496. In other words she would have leveraged her $100,000 three and one half times.

Suppose Rosie sails along for the next 20 years and doesn't need LTC until age 80. Because she included the 3% simple inflation provision, her maximum long-term care benefit would increase to a maximum $7,789 per month for six years for a total care benefit payout of $560,808, five and one half times her initial deposit. Because of the 2006 Pension Protection Act, all care benefits are income tax free.

Any LTC benefits Rosie receives reduce the life insurance benefits payable to her beneficiaries. But even if Rosie uses the maximum six years of LTC benefits, her beneficiaries will receive at least a $10,000 life insurance benefit. SecureCare is available to individuals of ages 40 to 75 years. It is from an insurer with A+ ratings from A.M. Best and now is available in 45 states. Policies are for individuals only; there are no joint policies for couples. The policies are purchased with a lump sum premium, and can't be purchased through IRAs or other qualified plans.

SecureCare offers a number of design options. You'll want to work with your insurance agent to choose the best options for you.

The basic benefit period is two or three years, and you can extend that another two or four years. The maximum benefit period is seven years. Some ages can design their policy to pay LTC benefits of up to 10 times their deposit. The amount of your deposit and the options you select determine your monthly benefit. When it's time to receive benefits, you can choose to receive less than the monthly maximum due under the policy, and that will extend the period benefits are paid.

You also can cancel the policy and have the premium returned. You receive 80% of your premium if you cancel within one year. But after five years, should you need the deposit, you can receive a refund of 100% of the premium.

There are three inflation-protection options you can select: 3% simple interest, 5% simple interest and 5% compound interest.

This is an indemnity policy, not a reimbursement or per diem policy. You don't need to provide receipts of amounts paid for LTC and wait to be reimbursed. Once you qualify for benefits, you begin receiving the monthly benefit amount. You spend the benefit however you wish.

LTC is broadly defined under SecureCare, covering pretty much any kind of care you might consider. You also don't need to have a physical exam nor lab tests to qualify. Those that are medically eligible simply complete an online application and telephone interview. Approval is immediate.

This type of policy can leverage your "lazy" or safe cash to provide robust LTC benefits that you customize to meet your preferences. It also provides life insurance benefits to your heirs, and you can receive a full return of premium after five years, if you need to access your deposit before you begin taking your LTC benefits.

For details on SecureCare and other leveraged LTC solutions, contact my experts on this, David and Todd Phillips, of Phillips Financial Services at 888-892-1102.