By: Jay Scheiner JD CLU
Partner, Agent Support Group

Some of our clients apply for long-term care (LTC) insurance with a LTC rider, only to be denied coverage due to adverse health history. Often these clients already own, or can qualify for, a life insurance policy without an LTC rider. In this situation, many families can preserve family assets by using life insurance as a stand-in for a long-term care policy or LTC rider.

Example: Denise, age 60, is a non-smoker, in reasonable health except for type 2 diabetes, osteoporosis, and a questionable echocardiogram. She applies for

$600,000 of Guaranteed Universal Life with an LTC rider that will provide up to

$12,000 a month for up to 50 months of care. The $600,000 policy with LTC rider would cost Denise $11,800 per year at standard. The same $600,000 policy without the LTC rider would cost her $9,800 per year. While Denise is accepted as a standard risk for life insurance, she is denied coverage for the LTC rider. Denise accepts the policy as offered without the LTC.

Fast-forward 20 years and Denise, now age 80 and disabled, requires long-term care services and would qualify for an LTC claim. She remains disabled for 36 months before she dies.

If Denise had a policy with LTC she would have paid $236,000 in premiums until the time she became disabled, and another $29,900 until she passed away. After a 90-day elimination period – during which Denise would pay

$36,000 for her care – the policy would pay her $12,000 per month for the remaining 33 months of her life, for a total of $396,000. At her death her beneficiaries would receive the balance of the policy, $204,000, as a death benefit. The total Denise and her heirs would receive from the policy would be the combined policy limit of $600,000.

If Denise had a policy without LTC she would have paid $196,000 in premiums until the time she became disabled, and another $29,400 until she passed away. By spending down her savings, Denise would pay $12,000 per month for care for the 36 months of her disability, for a total of

$432,000. After her death her beneficiaries would receive the $600,000 death benefit tax-free – effectively replenishing all of the costs of Denise’s lengthy illness and care plus an additional financial legacy for her loved ones.

As you can see from Denise’s story, life insurance can act as an ideal asset to replace the cost of care even in the absence of LTC. We have worked with agents and advisors in structuring hundreds of insurance plans for the purpose of funding the cost of care. Sometimes the solution comes in the form of a traditional LTC policy. More often than not it is in the form of life insurance with an LTC or

chronic illness rider, and certain situations call for a single premium LTC hybrid product. There are times, though, when a family like Denise’s, which bears the burden of long term care expenses, can best be reimbursed using the death claim from a life insurance policy.