Life Insurance As Long Term Care Insurance

Some of our clients apply for long term insurance (LTCI) or combined life with a long term care 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 a long term care rider. In this situation, many families can preserve family assets by using life insurance as a stand-in for an LTCI policy or long term care 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 a long term care rider that will provide up to $12,000 a month for up to 50 months of care. The $600,000 policy with long term care rider would cost Denise $11,800 per year at standard. The same $600,000 policy without the long term care 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 long term care rider. Denise accepts the policy as offered without the long term care.

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

If Denise had a policy with long term care 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 long term care she would have paid $196,000 in premiums up 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 a long term care component. 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 LTCI policy. More often than not it is in the form of life insurance with a long term care or chronic illness rider, and certain situations call for a single premium long term care 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.

Jay Scheiner, JD, CLU, is a partner at Agent Support Group, a New York based multi-company life brokerage agency. For over 30 years he has worked with independent insurance and financial advisors designing plans for individuals, businesses and estates.

Scheiner is a frequent speaker to agent groups and has served on insurance company field advisory councils, helping them better communicate with their distribution partners. He is the author of numerous articles and is a past contributor to Broker World. His recent book, The Promise of Kilimanjaro, is available on Amazon

Scheiner can be reached by telephone at: 516-467-1190. Email: