A New Flexible, Affordable Long-Term Care Plan

The revolution in planning for long-term care continues.

Longtime readers know that traditional stand-alone long-term care insurance (LTCI) policies aren’t the only way to go. Many people don’t like LTCI because of its use-it-or-lose-it nature. If you never file a claim on the LTCI policy, then you and your heirs don’t receive a financial benefit from all the premiums paid during your lifetime. Also, the traditional LTCI market’s been in turmoil since the financial crisis. Many insurers dropped out of the market. Others reduced coverage, hiked premiums, or took other actions. There’s a lot of uncertainty about traditional LTCI.

More and more people are turning to hybrid or combo policies to help cover any LTC expenses. Hybrid policies are either annuities or life insurance policies with LTC riders. Through these, you can obtain affordable LTC coverage, and if you don’t exhaust the policy benefits on LTC, there’s something left for your beneficiaries.

Hybrid policies can be a mixed bag. Some are attractive. Others are too expensive or have limited benefits. In the past we highlighted a couple of very attractive combo annuities, the ForeCare Fixed Annuity (see the July 2013 visit) and the Indexed Annuity Care from State Life Insurance (see the October 2014 visit).

This month we look at a brand-new and very attractive hybrid life insurance policy from Nationwide Life and Annuity Insurance Company.

There are several unique features to the Nationwide YourLife® No-Lapse Guarantee SUL II (SUL II).

One feature is that one policy covers both life insurance and LTC for two people. Also, the two don’t have to be a married couple. Of course, a married couple can use the policy. But unlike many other policies, this one can be established for an adult child and one parent, or by domes-tic partners. Any two people with an insurable interest can be covered under one policy.

While SUL II is a permanent life insurance policy, it isn’t a cash value policy. Instead, it is a permanent, no-cash-value policy with guaranteed benefits and premium to age 100. That makes this policy cheaper than the hybrid cash value life insurance policies. In essence, it is a Term to 100 policy with a big LTC benefit kicker.

With Nationwide’s new SUL II approach you will never pay more into the policy than will be paid out in either LTC benefits or a life insurance benefit. So, the first step should be to determine who should be the life insurance beneficiary after the second insured passes. (If there’s no one to receive a life insurance benefit, then you should consider an annuity with an LTC rider instead of the life insurance combo strategy.)

Each insured person will select his or her maximum LTC benefit. While the life insurance benefit can be higher, the SUL II maximum total LTC benefit for each person is $10,000 per month for 50 months, as set by current HIPPA regulations, or a total $500,000 payout. If Max and Rosie Profits, a married couple, take out a policy with a $500,000 life benefit, they can each select an LTC benefit ranging from $50,000 to a maximum of 50% of the life insurance benefit, $250,000 in this case. They can each select the maximum LTC benefit of $250,000. To obtain more LTC coverage, they simply buy a higher value of life insurance. The amount of the LTC coverage affects the premium.

Next, choose the premium payment schedule. You can choose a single sum deposit, continuous annual deposits, or anything in between. A popular choice is 10 level annual payments creating a policy with coverage to age 100.

The LTC coverage is triggered in the same ways as in traditional LTCI policies and most hybrid policies. Your licensed healthcare professional certifies that either you have a severe cognitive impairment or are unable to perform two or more of the six activities of daily living.

After a 90-day waiting, or elimination, period the monthly LTC payments begin. LTC payments last for up to 50 months if you take the maximum monthly payment of 2% of the maximum LTC benefit. You can extent the duration of the payments by electing a monthly benefit payment of less than 2% of the maximum LTC coverage. (There is a separate 90-day elimination period for each insured.)

Another advantage of the SUL II Hybrid policy is that the LTC coverage is a cash indemnity benefit, not a reimbursement. With a cash indemnity plan the full contractual LTC benefit amount is paid to you in full each month without your having to prove that care took place or the cost of care. To ensure the LTC benefits are tax free, a Plan of Care must be submitted when the claim is filed. In general, Nationwide will place no restrictions on how the benefits are used, which means informal caregivers and immediate family members can provide care.

Another advantage of cash indemnity is that the insured is in full control of how the monthly LTC benefits are spent. Benefits can be used as needed for items or services-such as home modifications, transportation, or prescriptions-without the permission of Nationwide. You don’t even have to spend the monthly check on LTC. In a reimbursement policy, you have to submit invoices from the care providers to the insurer and wait for reimbursement.

As LTC benefits are used, the amount of the life benefit is reduced, but even if both of the insureds use the entire LTC benefit, a minimum life benefit of 10% of the face value up to a maximum amount of $50,000 will be paid to a beneficiary. Of course, if neither of you required LTC, the beneficiary receives the full life insurance benefit. If some of the LTC benefits are used but not the maximum, then the beneficiary receives the initial life insurance benefit minus the LTC benefits received. If the entire LTC benefit is used, then the LTC benefit payments stop.

You must be in relatively good health to qualify, because there is full underwriting for both the life insurance and LTCI coverage. A complimentary visit by a paramedic is required. That’s good for those who qualify. It means the insurer isn’t likely to have the excessive claims problems encountered by insurers who issued LTCI policies with inadequate underwriting.

Of course, Nationwide is a well-known, conservative, diversified insurer that has excellent financial safety ratings.

For details about Nationwide’s SUL II hybrid life insurance policy with LTC rider and to request your personalized Hybrid Life LTC Kit, contact my insurance experts David Phillips or Todd Phillips at Estate Planning Specialists (888-892-1102).