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4 min read

June 12th, 2018

Think of choosing a retirement plan as choosing the vehicle in which you ride off into the sunset.


Picture it: What type of car (or truck) are you driving? Or are you being driven?


Now, why’d you picture that particular make and model? Without getting too Freudian, know that you can learn a lot about what type of retirement you want by unpacking the features of the car you picture yourself driving off in.


Most folks see a safe, reliable, comfortable vehicle with enough room to fit all their things and loved ones (with fewer loved ones meaning more things, and vice versa). Some are pretty particular about luxury and exclusivity, and even a select few ride a Harley.


But the point I’m making is, every sunset ride strategy comes with a price. The goal of Long-Term Care (or LTC as we finance nerds call it) is insuring the vehicle you ride off in performs exactly as they said it would in the brochure. 


The goal of LTC is making sure that if life gives you a lemon, you have plenty of sugar left to make lemonade.


Traditional Long Term Care gave the industry a bit of a branding issue. With premium increases due to inadequately priced products and carriers pulling out of the marketplace altogether, the standalone Long Term Care plans quickly became hard for advisors to recommend as they did not know how these products would perform in the long term. 


Would rate increases affect their clients in the future? Would their clients be able to maintain the higher premiums to keep their policies? 


Enter Asset-Based LTC, where premiums and benefits are guaranteed. Long-term care can be a costly expense and Asset-Based LTC can help offset that cost and give both advisors and clients a way of creating an income plan to address any future long-term care risk. 


The rebranding of Asset-Based plans has helped advisors to begin the conversation again with their clients about covering their risk for a long-term care event.


Both Asset-Based LTC and Traditional LTC cover Assisted Living, Skilled Nursing Care and Home Health Care.  Both types of policies trigger benefits if the insured can’t perform 2 out of 6 Activities of Daily Living (ADLs): eating, bathing, dressing, toileting, transferring and continence or client has a cognitive impairment.


Asset-Based LTC and Traditional LTC both have some comparable benefits.  The main difference is in the way the policies are structured.  Asset-Based policies have either a life insurance or annuity foundation.  A traditional LTC policy is designed as a “stand-alone” long-term care benefit plan.


With Asset-Based LTC plans there are several strategies for repositioning existing dollars to fund the plan usually on a single premium basis although flexible premium payment options are available. They typically provide guaranteed premiums, rates that never increase, death benefits (on life insurance chassis), payable tax-free to your beneficiary and some offer a Return of Premium feature that can be attractive to certain clients.


Consequently, Asset-Based LTC plans can leverage a client’s premium dollars and purchase more than just a long-term care benefit.  Since the passing of the Pension Protection Act (PPA) of 2006 more Asset-Based Plans are being purchased and more carriers are entering the Asset-Based LTC market. The "use it or lose it" aspect of the Traditional Long-Term Care plan is eliminated with Asset-Based Long Term Care.


The Traditional long term care plans are priced on receiving on-going premiums that are not guaranteed. They simply provide pure long term care benefits for the daily or monthly benefit amount purchased. Some plans offer a nonforfeiture benefit, which adds substantially to the premium costs. Over the years there have been carriers which have had to increase premiums on their blocks of Long Term Care business or pull out of the market altogether. 


Increases in the premium may cause a Traditional Long Term Care policy to no longer be affordable.  This may come at a time when a client can no longer medically qualify for a different type of plan.


See this comparison provided by OneAmerica.


(part 2 of 3)


Overused phrases get overused for good reason.