Long-Term Care Awareness Month
November is Long Term Care Awareness Month and perhaps one of the most important ones in many years. Last year, Washington State instituted WA Cares Fund a state mandated LTC program. Washington State workers will pay $0.58 per $100 of earnings and will receive a $36,500 life-time benefit for Long Term Care Expenses. Residents of Washington State could opt out if they had a qualified Long Term Care policy that paid a $3,000 per month benefit for 24 months in place by November 1, 2021. Several other states including California are exploring instituting a similar program. California created The Long-Term Care Task Force when AB 567 was passed by the legislature and signed by Governor Newsom.
The Task Force is comprised of Industry experts. The Task Force will make recommendations for creating a statewide long-term care program with comments on the feasibility of the options outlined in the report. The Feasibility Report is due to the Governor and Insurance Commissioner by January 1, 2023.
The Task Force’s next job is to produce an actuarial report to ensure the recommended program is a solvent program. That report is due on January 1, 2024. Once the Actuarial Report is approved by the Task Force Members it will be submitted to the Legislature. The Legislature will use the report to start drafting the bill.
The program’s benefit amount and potential tax is not clear, but an opt out for people who have a qualified long-term care policy or who obtain one by a certain date is likely. That is why this Long-Term Care Awareness Month is so important. An important time to review what type of Qualified Long Term-Care products are available.
Traditional Long-Term Care Insurance
Provides a low-cost benefit to cover long term care services. The benefit period is typically 2 to 5 years and a 3% to 5% cost of living adjustment rider can be added too. The downside of this type of solution is that if you do not use it you lose it.
Hybrid or Asset Based Solutions
These have become more popular in recent years. Unlike traditional long-term care insurance these have a cash value and a death benefit if the long-term care benefits are never used. They are considered “asset based” or “hybrid”, because they are combination of a permanent life insurance policy or annuity with a qualified long-term care policy. They can provide a life-time benefit and a 3% to 5% cost of living adjustment rider can be added too. People who have set aside assets to “self-insure” can have those assets leveraged up to provide a larger benefit. Despite the life insurance and annuity portion this product is long term care focused. The death benefit and cash value are secondary benefits. The majority and in some cases all their premium dollars can be returned if the policy owner decides to surrender the contract. The downside is that there is a high premium outlay because it is paid as single premium or up to a 10 pay.
Permanent Life Insurance with a Qualified Long-Term Care Rider
This is like the “asset based” or “hybrid” solution because it utilizes a permanent life insurance policy. The difference is that the primary purpose of these policies is the life insurance death benefit and the qualified long-term care rider is a secondary benefit. This is the reverse in a matter of speaking to the “asset based” or “hybrid solution”. The qualified long-term care rider accelerates typically between 2% to 4% of the death benefit each month until the death benefit is exhausted, or the insured dies and the residual death benefit is paid out to the beneficiary. The advantage of this solution is being able to take care of two needs with one product, but that is also can be a disadvantage. It can leave the beneficiary with no or a reduced life insurance benefit.
All these solutions have their advantages and disadvantages and can be combined to mitigate them. None of them can take care of all long-term care needs 100%. However, if they take care of 80% or even 50% it is better than not having anything.
This material contains only general descriptions and is not a solicitation to sell any insurance product or security, nor is it intended as any financial or tax advice. For information about specific insurance needs or situations, contact your insurance agent. This article is intended to assist in educating you about insurance generally and not to provide personal service. They may not take into account your personal characteristics such as budget, assets, risk tolerance, family situation or activities which may affect the type of insurance that would be right for you. In addition, state insurance laws and insurance underwriting rules may affect available coverage and its costs. Guarantees are based on the claims paying ability of the issuing company. If you need more information or would like personal advice you should consult an insurance professional. You may also visit your state’s insurance department for more information. Annuities are long-term, tax-deferred investment vehicles designed for retirement purposes. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Withdrawals made prior to age 59 ½ are subject to 10% IRS penalty tax. Surrender charges apply.