|Guest blog content provided to Raffa Financial Services by Michael Riska at Mid-Atlantic Benefits Group|
Carrying long-term care insurance is a great idea. We’re living longer, and the chances that we’ll need some type of long-term care services in our lifetime are increasing accordingly. According to the AARP Public Policy Institute, 52% of people who turn 65 today will develop a severe disability that will require long-term support services at some point.
Standalone long-term care (LTC) insurance is available as an employee benefit, but whether it’s the right fit depends very much on the employee group. In the ongoing balancing act between priorities and budget, purchasing an LTC plan often ends up pretty low on the average person’s to-do list. And by the time we’re in a position financially to purchase LTC coverage, we’re often past the point where our youth and good health would make the plan more affordable.
Two Birds, One Stone
An increasingly popular strategy for making LTC benefits more accessible to the average employee is by offering permanent life insurance plans that have them built in.
Here’s how it works:
The employee purchases a voluntary Universal Life or Whole Life plan through payroll deduction. If the employee dies, it acts like any other life insurance and the death benefit is paid to the beneficiary. But if the employee requires long-term care, the death benefit becomes a source of cash that can be drawn monthly and used for care expenses. This depletes the death benefit, but many plans allow for up to two-times the original death benefit to be withdrawn and will still leave some small amount of life insurance intact.
Employee purchases a $100,000 universal life policy with LTC benefits included
Employee dies: Payout to beneficiary = $100,000
Employee requires long-term care: Payout = $4000/month for 25 months
Extension benefit pays an additional $4000/month for another 25 months
LTC benefits are exhausted and final policy is paid-up with a benefit of $25,000
Some attractive additional features with these plans include the ability to apply at initial offering without answering health history questions, early withdrawal of benefits for terminal illness diagnosis, accumulation of cash value and portability at the payroll rate.
Know Your Options
If you’re considering offering a benefit like this to your employees, here are some questions you and your broker should ask when reviewing carrier offerings:
- How much of a benefit will employees be able to apply for without answering health questions? This is the “guaranteed issue” amount.
- What is the trigger for using the long-term care benefits? Being unable to perform two Activities of Daily Living, as certified by a doctor, is standard.
- Is there a waiting period that must be satisfied before starting to withdraw long-term care benefits? 90 days is standard.
- Are there limitations to what kind of long-term care qualifies? For example, can you use the benefit toward in-home care, or must care be provided in a licensed facility?
- Does the carrier offer an extension of benefits? This is the feature that doubles the LTC payout. Availability can vary by state.
- At what rate does the policy accumulate cash value? Is that fixed (typical with Whole Life) or can it change (Universal Life)? Does the carrier offer a guaranteed rate of return?
- Are there plan options that give you a choice about what your premium dollar is buying? For example, some Universal Life plans can be High Cash Value (more of your premium goes toward accumulating cash value) or High Face Amount (more of your premium goes toward purchasing life insurance benefit).
- If you use up all your long-term care benefit, do you have any life insurance left?
Written by Michael Riska
Michael Riska is a partner and COO at Mid-Atlantic Benefits Group. He has specialized in voluntary benefits and benefit enrollment for 17 years.
Photo by zimmytws