The policy described by Gertie would provide $3,900 a month for up to six years, which is longer than the standard two or three years usually covered by traditional long-term-care insurance. "In simple terms, they can pay $141,365 for $280,000 of long-term-care benefits each," Gertie says.
Another alternative, he says, is a hybrid annuity that pays for long-term care. The amount paid into the annuity plus interest is available as a normal annuity payment set by the terms of the policy. But if it is needed for long-term care and the holder has a long-term-care rider, it pays out nearly double in long-term-care benefits. The fees for the long-term-care option are higher than normal annuity fees. Any money left over that has not been used for long-term care is still available at the end as a death benefit or as an annuity payout for the survivors.
For those people who are looking to self-insure for long-term care and who do not need the death benefit from a life insurance policy, the annuity hybrid is preferable to the life insurance hybrid, Gertie says. This is partly because a death benefit could complicate the estate distribution and taxes after the policyholder dies.
But a strong selling point for the annuity hybrid is that it keeps the death benefit or annuity payments available for family if the policyholder dies and hasn't used the long-term-care coverage. If the same couple had been paying for traditional long-term-care insurance and did not need it, the money would just be gone.
Jim Sloan, an estate and retirement planning specialist in Houston, Texas, who deals mostly with clients 55 years old and older, says that for the past two years he has been dealing with life insurance policies with long-term-care riders because they fit client demands. "Most of [the clients] do not have long-term-care insurance because it is too expensive, and if they do not use it they never get anything back," he says.
A $50,000 single premium policy can turn into $250,000 in long-term-care benefits with the right rider, he says, and if the clients want their money back before they collect long-term-care benefits, they can get it. Otherwise, it converts into a traditional life insurance policy worth $150,000 when they die.
"Here is an alternative in a universal life insurance policy with a long-term-care rider and an optional money-back-guarantee rider. Or the family collects the death benefit when the person dies," Sloan says."There are three ways to provide for long-term-care costs. You can self-insure, you can buy a traditional policy or you can buy one of these new hybrid policies. You can write in a cost-of-living adjustment for the long-term care, but if you never need it, the family gets the death benefit."
For most people, the amount of benefits for long-term-care coverage goes down the longer you wait to buy the policy. "The sweet spot for buying this hybrid policy is between the ages of 55 and 70," Sloan says.
He encourages retirees to consider one of these asset-backed long-term-care coverages of life insurance with a long-term-care illness rider. "The policy offers the ability to multiply dollars for long-term-care purposes. It has a 100 % money-back guarantee, as well as a death benefit," he says. "Many retirees have money stashed away in a rainy day fund that they can easily repurpose to help address long-term-care concerns."
Kimberly Foss, president of Empyrion Wealth Management in Roseville, Calif., has just started using these types of policies, and she deals with Gertie's Advisor Insurance Resource. Her practice is mostly retirees and women in transition. "I think this will catch on," Foss says. "We do not know what the insurance industry and premiums will look like in a few years. Why put up $3,000 to $5,000 a year for long-term-care insurance when you don't know if you will get anything back?"