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Life Insurance with Long Term Care Benefits

Life Insurance with Long Term Care Benefits

If you’re concerned about the high costs of long-term care but don’t want to purchase traditional long-term care (LTC) insurance, you might consider two strategies that combine permanent life insurance coverage with long-term care benefits.

Keep in mind that any payouts for covered LTC expenses reduce (and are usually limited to) the life insurance death benefit that would go to your heirs, and benefits can be much less than those of a traditional long-term care policy.

Accelerated Death Benefits (ADB) Rider

An ADB rider attached to a permanent life insurance policy allows the insured to begin receiving benefits while he or she is still living, under specific circumstances.

In the past, ADB riders only paid when a policyholder was diagnosed with a terminal illness. However, more insurers now offer riders that start paying when a policyholder is diagnosed with a chronic illness, is permanently disabled, or needs to enter a nursing home.

Although some policies may include an ADB rider at little or no cost, ADB riders are generally optional and will increase the premium.

Hybrid Life — LTC policy

This type of policy combines permanent life insurance and long-term care coverage. Many such policies require a substantial up-front premium, but buyers don’t have to worry about future rate increases or the issuer canceling the policy.

For the same premium, a hybrid policy typically has a smaller death benefit than a life policy with an ADB rider. However, the LTC coverage is more generous than an ADB rider.

 

Cost of Care

Benefits under a hybrid policy typically begin when the policyholder needs help with two or more activities of daily living such as eating, bathing, and dressing.

With an optional continuation-of-benefits rider, payouts for covered LTC expenses could continue for a specified period or your lifetime, even if they exceed the death benefit.

Financial flexibility

Another advantage of these strategies is that policyholders can tap into the cash value of the permanent life policy during retirement if money is needed for income or emergencies. Loans and withdrawals will reduce the policy’s cash value and death benefit.

Other considerations

It would be wise to explore your LTC options while you are healthy. If you consider a life insurance policy with an ADB rider or a hybrid life-LTC policy, you should have a need for life insurance and evaluate the policy on its merits as life insurance.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. In addition to the life insurance premiums, other costs include mortality and expense charges. If a policy is surrendered prematurely, there may be surrender charges and income tax implications.

Any guarantees are contingent on the financial strength and claims-paying ability of the issuing insurance company. Riders are subject to the contractual terms, conditions, and limitations outlined in the policy, and may not benefit all individuals.

 

Replacement and Conservation Considerations for Life Insurance Policies

Replacement and Conservation Considerations for Life Insurance Policies 

What is it? 

Life insurance can be complicated. Yet many people have life insurance because they recognize the need to provide adequate resources for their dependents when they die. Many others treat their life insurance policies as investments from which they hope to realize a sizable return. If you own a policy, you probably derive peace of mind from the protection it offers, and you may even make money for yourself at the same time. You probably also remember how much work went into choosing the right insurance company and the particular policy that’s best for you. 

Even after you finally decide on a policy, your work is far from over. The purchase of a policy is only the first step in an ongoing process that should include periodic reevaluations of both the company and your policy. It makes sense that you should keep track of the company’s performance and continue to feel that the policy you chose still matches your needs and circumstances. Don’t be surprised if a conscientious review indicates the need to replace or exchange your policy. And yet there will be times when it’s definitely wise to keep your existing policy in place. A middle ground course of action between the two extremes of replacing a policy and keeping it without making any changes at all is to adjust the level or amount of coverage provided by your existing policy. Another possible strategy is to transfer the interest in your policy to another party. If you exercise this option, be aware of how the transfer-for-value rule might apply to the transfer. 

Usually all of these replacement and conservation considerations require that you consult additional resources such as a financial professional, a CPA, an insurance agent, and/or insurance companies before making any decisions. 

What are some specific replacement/conservation considerations? 

When to replace or exchange a policy 

There are many possible reasons for replacing your existing life insurance policy. However, there is no precise formula to tell you when replacement is the best strategy to follow. The final decision will ultimately depend on your individual situation. In general, though, reasons to replace might include dissatisfaction with your company or various aspects of your policy and changes in your financial circumstances or coverage needs. If changes are drastic or your dissatisfaction is extreme, you should probably consider replacement as an option. 

Reasons to keep existing policies 

Reasons to keep existing policies are many and varied and do not constitute anything close to an exact science. You certainly shouldn’t let laziness or fear of change keep you from replacing your existing policy, but there are legitimate reasons why you might want to leave it as is. If you’ve been happy with the company and the policy, if the terms and provisions of the policy still suit your coverage needs, and if your financial circumstances haven’t changed much since you bought the policy, there may be no grounds for a change. In fact, there may be tax issues, insurability issues, replacement costs, and other considerations that induce you to stick with your existing policy. 

Changing levels of coverage 

If you feel that your circumstances warrant some kind of change but you’re unwilling to replace your policy, the appropriate strategy may be to simply change your level of coverage. This involves adjusting the amount of the death benefit (either up or down) payable to your beneficiary if you die and will often require a corresponding adjustment to your premium. Reasons to alter your coverage level might include marriage or divorce, children or other additions to your family, employment changes, and changes to your financial situation. 

Transferring policies 

Under certain circumstances, it may be to your advantage to transfer all the interest in your life insurance policy to another party. This is generally known as a transfer of ownership or an absolute assignment and involves assigning ownership of the policy to someone other than you, the person named as the insured party. Such transfers are an exception to the general rule that the owner of a life insurance policy and the insured are one and the same. You may also be able to transfer some–rather than all–of the ownership rights in your policy. However, flexibility in terms of ownership rights will vary from one policy to the next, so read the appropriate clauses in your contract. A transfer may be an appropriate option if you want to use some of the interest in your policy as collateral for a bank loan and may be advantageous for tax and other reasons, as well. 

Transfer-for-value rule 

Section 101(a)(1) of the Internal Revenue Code provides for the income tax free status of life insurance death benefits paid to your beneficiary upon your death. The transfer-for-value rule is an important exception to this general rule. If you transfer an interest in your policy to another party in exchange for valuable consideration, Section 101(a)(1) no longer applies, meaning that the portion of death benefits paid under the policy exceeding the value of the consideration paid by the transferee plus any premiums paid by the transferee after the transfer, may now be subject to income tax. Thus, you should find out how this might apply to you if you are considering a transfer of all or part of your policy. 

 

IMPORTANT DISCLOSURES 

This material was prepared by Broadridge Investor Communication Solutions, Inc. This information is believed to be from reliable sources; however, no representation is made as to its accuracy or completeness. This information does not constitute tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty, nor is it a solicitation or recommendation to purchase or sell any insurance or investment product or service, and readers should not rely upon it as such. Readers should seek such advice from their own tax or legal counsel or financial professional. Securities, investment advisory and financial planning services through qualified registered representatives of MML Investors Services, LLC. Member SIPC. 6 Corporate Drive, Shelton, CT 06484. Tel: 203-513-6000. 

New Life Insurance? There are different kinds.

New Life Insurance? There are different kinds.

The Covid-19 pandemic affected the lives of Americans in many ways. One of those ways has been a desire to financially protect oneself and loved ones. Almost one in three consumers (31%) say they are more likely to buy life insurance because of the pandemic, according to the LIMRA 2022 Insurance Barometer.

But what kind of life insurance? For most people the choice can be broken down into two main policy categories – Term Life Insurance and Permanent Life Insurance. Term life insurance has an expiration date, while whole life insurance, which is the widely purchased permanent insurance, lasts for one’s entire life.

It’s not unusual for people to own each kind, as both types of insurance have their benefits. Term life can give an individual and family coverage for a significant time, say, while children are growing up and perhaps going to college. One or both spouses can be covered. Both may be major earners, or one may be the major breadwinner, but the other spouse may have major responsibilities with children and the home. Renewing a term life policy is generally more expensive, though.

The difference from term life is that whole life lasts for an insured’s lifetime and the cash value of a whole life policy typically earns a fixed rate of interest. The policy pays a beneficiary or beneficiaries upon the insured’s death. Importantly, whole life has a cash savings component, which the policy owner can draw or borrow from. Outstanding loan principal and interest reduce death benefits.

While whole life is the leader among permanent insurance, there are options. One is universal life insurance, which allows policy owners to make changes to both the premium and the death benefit. However, the rate of growth for cash value, is subject to change and is based on an interest rate set by the insurance company. There is still a guaranteed death benefit.

Another option, aptly named, is variable life insurance. This is influenced by the behavior of the financial markets. The cash value of this insurance grows based on investments in mutual funds that are offered by the life insurance company. The growth of the cash account correlates to broader market trends, so it’s possible to see faster increases than you’d see with other types of permanent life insurance. However, there is no guaranteed minimum cash value. The death benefit for variable life insurance can fluctuate over time but still has a guaranteed minimum amount.

These different types of insurance could benefit you and your family, but as this article outlines, there are nuances, and what is appropriate for one person may not be for another. It’s important to discuss the options with a financial professional.

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