Asset based long-term care insurance as an alternative to traditional long-term care policies

Asset based long-term care insurance as an alternative to traditional long-term care policies

One thing I hear a select group of senior retirees lament is that they feel they have put “so much money” into their long-term care insurance policies and, as yet, have received little or no benefit.

Some wonder, as they continue to pay premiums, whether they will ever see a return for the dollars they have contributed. Others speculate that they may have done better had they invested their premiums rather than handing them over to an insurance company.

A few thoughts about such concerns.

So far, these particular folks are fortunate in that they have not had major expenses for extended care. It seems fair to say that, at least for this, they should be thankful.

Another point is that anyone’s circumstances can change quickly. The unhappy premium payer of today may face the spectre of extended care costs tomorrow. One would expect such an individual to become a reformed believer in the value of his or her policy as a key form of protection.

Regardless, there seems to be a disconnect with how some people perceive the ongoing value of their long term care policies. By contrast, most of these same individuals have never filed a major claim under their homeowner’s insurance.  Yet, I seldom hear similar complaints about having “paid all that money” over the decades with so little to show for it.

What if there were a way to solve this problem?

What if the “bottomless pit effect” which leaves insureds feeling like they keep paying and paying, yet receiving little or no benefit in return could be eliminated? 

In my humble opinion, there is an answer.

It is called “hybrid” or “asset based” long-term care insurance.

Asset Based Long-Term Care Insurance

When the first long-term care insurance policies were introduced decades ago, they were new to everyone, including insurers. Companies tested many different plan options and actuarial assumptions to price policies affordably and effectively.

In some cases, insurers underestimated their future costs and ended up having to raise premiums. Over time, the shape and form of long-term care insurance has continued to evolve.

On August 17, 2006 the Pension Protection Act (PPA) went into effect and changed the long-term care insurance landscape even further.

Importantly, the PPA opened the door for insurance companies to offer riders on qualifying life and annuity policies to provide tax free withdrawals for the purpose of funding certain long-term care expenses.* This set the stage for the introduction of new “hybrid” or asset based long-term care policies.

Under the right circumstances, such policies can serve as an alternative to traditional long-term care insurance policies.

Here are a few characteristics of asset based long-term care insurance,

  • Asset based long-term care insurance is a life insurance policy or annuity that includes a rider (or riders) which expand coverage to include qualifying long term care expenses.
  • In general, if you don’t end up using the policy for long-term care expenses, you won’t “lose” the money you put into it. This is the case because the underlying policy can still carry out its base function as either an annuity or a life insurance policy.
  • If benefits are never needed, either the death benefit of a life insurance policy, or accumulated funds of an annuity can be left to heirs.
  • Insureds can live a long life with the certainty of having coverage and without the anxiety of constantly shelling out premiums.
  • Most policies require a fixed, upfront premium to be paid, though some contracts may allow for annual contributions.
  • Internal funds grow on a tax-deferred basis and qualifying long-term care expenses can be paid on a tax advantaged basis.
  • At least one insurer offers a policy that can be purchased jointly. This allows both individuals in a couple to benefit from coverage under a single policy.
  • Depending on the contract, additional riders may be available to provide protection for inflation as well as other extended benefits.
  • Asset based policies are medically underwritten, but some individuals may find it easier to qualify for certain types of these polices.

Moving dollars from one pocket to another

Where appropriate and as part of a comprehensive plan, asset based long-term care policies can provide an opportunity to leverage low-risk nest-egg funds to safeguard against the cost of extended care.

  • Conceptually, funds shift from “one pocket to another”
  • A portion of dollars allocated to safe, low-risk positions – such as cash, intermediate and/or long-term bonds – are reallocated into asset based long-term care insurance.
  • If long term care benefits are not needed, these repositioned funds serve as added support for legacy planning.

Long-term care insurance is not right for everyone and there is no one-size fits all solution when it comes to choosing a policy. If you live in the Cincinnati, OH area you are welcome to contact me through my agency to discuss the suitability of such coverage for your situation.

For readers in other areas, an excellent resource is the American Association for Long Term Care Insurance. Their website has a trove of great articles as well as links for finding an advisor, if you need more help.

Think a long-term care event will never happen to you?

Do you believe you are invincible?  If somehow it turns out you’re not, can you guess who will have the most to lose if you fail to make a plan for long-term care? This article explores the answer: If you were sick or disabled, who would chew through a wall to take care of you?

*Note: Neither I nor my agency provide investment, legal, or tax advice. If you need help with such issues, be sure to consult with a qualified advisor. 

If you were sick or disabled, who would drop everything they were doing to take care of you?

I recently wrote a sales letter for the agency about the need to plan for “extended” or long term care insurance.  When it comes to the issue of planning for extended care, many people experience a disconnect.  In sum, they believe they have nothing to fear because they think subconsciously, “It will never happen to me.”

The biggest risk from the dismissal of such planning is not so much about what happens to the sick or impaired individual. Rather, it is the fallout that occurs to those who are forced to step up to help the sick or impaired individual. And, who usually steps up? Those closest to us such as a spouse, a partner, a child, a lifelong friend. 

Below is the text from the marketing letter I wrote. I would love to hear your feedback. You can reach me through the comment section below or contact me directly, through this site’s contact page.

Here is the copy of the letter,

If you were sick or disabled, who would drop everything they were doing to take care of you?

If you could no longer care for yourself, who would be the first to make sure you received the care you need? Would it be your spouse? A partner? A sibling? A child? A lifelong friend?

Whoever it would be, it is someone who cares deeply about you. But, without a plan for the possibility of extended or “long term” care,  it is this person who may have the most to lose.

By starting a family, we invite people into our lives. Along with this invitation, comes a promise to provide for and keep our loved ones safe. Such promises last a lifetime, even into our elderly years.

The commitment to protect loved ones is human nature. It stems from a core belief that we can rise to meet life’s challenges with confidence. However, if we dismiss the need to plan by thinking “It will never happen to me”, we leave our promises to chance. Those we once said would take care of, may face the burden of taking care of us.

If we ever really needed help, certain of our loved ones would likely do whatever it takes to get us the care we need. Some would overcome any obstacle, make any sacrifice, and even put their lives on hold.

But, at what cost?

As a long-term illness or impairment progresses, higher and higher levels of care are required. If you have a surviving spouse, the burden for care will generally first fall on his or her shoulders.

-Spouses faced with the increasing demands of providing care for a partner often suffer irreversible physical, emotional, and financial consequences.

-In families with multiple children – especially as the healthy spouse begins to waver under the weight of providing unending care – frequently one child ends up taking on most of the burden to assist the healthy parent.Over time, this imbalance can cause friction among siblings. This often leads to future resentment and division in families.

-Due to the 24/7 demand for care, the child of a parent in need may be left with no choice but to set aside his or her life. Thereby, impacting his or her career, relationship with spouse, relationships with children, involvement in the community, personal pursuits, and more.

-The enormous cost of providing extended care frequently demands a reallocation of retirement income and may force an intrusion into underlying retirement assets. Such intrusions can undermine the future financial stability of a surviving spouse, special needs child, legacy planning, or charitable giving.

-Advances in medicine now allow people with chronic conditions to live longer than ever. While generally good news, for those who have no option but to put aside their lives to provide care, this can prove a source of increasing stress.

It doesn’t have to be this way.

You can help protect the people you love by putting together a plan before care is needed. The goal of the plan should be threefold.

1) For as long as possible, allow you to gain access to the care you need at home with minimal physical, emotional, and financial impact on the people who care about you.

2) Instead of having family members provide care directly, empower family members to hire and coordinate professionals to provide your care.

3) Where suitable, seek to mitigate the cost of providing care through the leverage of long term care insurance. Plans may be available which provide essentially a ‘return of premium’ to heirs should you end up not needing care.

Every person’s situation is different and there is no one-sized plan that fits all. At McCarthy Stevenot Agency, Inc. we have been guiding businesses and individuals with insurance needs for over 25 years.

To learn more about how to create and fund a plan to protect the people you love from the risks associated with extended care, contact our agency at this link.

Here is wishing you the strength to stay the course and deliver fully on the promise to protect those who are the most important in your life!



Ted Stevenot
McCarthy Stevenot Agency, Inc.

209 Main St., Milford, OH 45150 | Phone: 513-891-9888 | Fax: 513-891-3088 |