With 70% of people over the age of 65 expected to need extended care services at some point in their life, according to the U.S. Department of Health and Human Services, this is a question we get asked quite often from clients as they plan their retirement years.
Combination Life Products
Many consumers are reluctant to buy long-term care insurance because they fear that their investment will be wasted if they do not use it. Some insurance companies have attempted to solve this problem by combining life insurance with long-term care insurance. The idea is that policy benefits will always be paid, in one form or another. These products are relatively new, and the features are changing as the product evolves. The amount of the long-term care benefit is often expressed in terms of a percentage of the life insurance benefit.
Accelerated Death Benefits (ADBs)
A feature included in some life insurance policies that allows you to receive a tax-free advance on your life insurance death benefit while you are still alive. Sometimes you must pay an extra premium to add this feature to your life insurance policy. Sometimes the insurance company includes it in the policy for little or no cost.
There are different types of ADBs each of which serves a different purpose. Depending on the type of policy you have, you may be able to receive a cash advance on your life insurance policy's death benefit if:
- You are terminally ill
- You have a life-threatening diagnosis, such as AIDS
- You need long-term care services for an extended amount of time
- You are permanently confined to a nursing home and incapable of performing Activities of Daily Living (ADL), such as bathing or dressing.
Good To Know
The amount of money you receive from these types of policies varies, but typically the accelerated benefit payment amount is capped at 50 percent of the death benefit. Some policies, however, allow you to use the full amount of the death benefit.
For ADB policies that cover long-term care services, the monthly benefit you can use for nursing home care is typically equal to two percent of the life insurance policy's face value. The amount available for home care (if it is included in the policy) is typically half that amount.
For example, if your life insurance policy's face value is $200,000, then the monthly payout available to you for care in a nursing home would be $4,000, but only $2,000 for home care. Some policies may pay the same monthly amount for care, regardless of where you receive the care.
When you receive payments from an ADB policy while you are alive, the amount you receive is subtracted from the amount that will be paid to your beneficiaries when you die.
Key things to consider before taking advantage of an ADB policy include:
- If your life insurance policy includes an ADB feature, you may be able to use your life insurance policy to help cover long-term care services. Depending on the policy coverage amount, there may be little, or no health screenings required. So, if you have a health condition that might exclude you from long-term care insurance eligibility, you can still obtain a long-term care insurance policy through the ADB feature on a life insurance policy.
- ADB policy payouts for long-term care services are often more limited than the benefits you could receive from a typical long-term care insurance policy.
- The face value of your life insurance policy may not be enough to allow ADB payments that are enough to cover your long-term care services needs. The benefit payments may be too low, and the duration may be too short to cover your long-term care services expenses.
- ADB riders on life insurance policies may not offer inflation protection. If the policy does not include inflation protection, the ADB payment may not be sufficient to cover your future long-term care service costs.
- If you want to leave an inheritance, you should consider whether using your life insurance death benefit to pay for long-term care services is the right option. If you use the ADB feature for long-term care services, there may be little or no death benefit remaining for your survivors.
- Using the ADB option may affect your eligibility for Medicaid. Check with your state Medicaid agency for more information.
If you would like additional information regarding Extended Care options, log on to our website at AmericanFinancial.net or give us a call. We are here to help “Make Your Retirement Years the Best Years of Your Life”.