Other Ways To Use Life Insurance
But before you advise clients to buy life-LTC coverage, some industry watchers insist it’s important to determine whether the client actually needs (or still needs) the life policy. “First and foremost, there has to be a need for life insurance,” says Nelson Rivera, director of insurance services at Clarfeld Financial Advisors in Tarrytown, N.Y. “If there is no need for the life insurance, other options should be explored.”
Such options could include borrowing against the cash value of the life policy or selling the policy outright to raise funds. But such moves should only be done carefully. “Before they consider settlements, or deciding to terminate any plan, clients must fully investigate every alternative available,” says Jayne Alford, a financial planner and managing director at IFP Insurance Group in Tampa, Fla. “You don’t get a do-over.”
Moreover, there are other ways to use life insurance to help fund LTC expenses. Clients could also consider adding an accelerated benefit rider to their life insurance. It can work somewhat like an LTC rider, but it has no additional costs associated with it. “This would allow them to spend down the death benefit to pay for LTC expenses,” explains Rivera. “Benefits can be utilized until the death benefit is fully depleted. … If there is any remaining death benefit when the insured dies, the remaining death benefit is paid to the beneficiary or beneficiaries.”
Explore Every Alternative Available
As popular as hybrid life-LTC insurance has become, it isn’t for everybody. “We generally do not endorse the use of hybrid or linked life-LTC products,” says Zovistoski, of UHY. “Our rationale is, if there is a life insurance need and the client is able to access the policy for LTC needs, then the policy will not be [as] available for the life insurance need when that occurs. Having a hybrid product puts the pressure on the client to choose which need has priority, and typically the client will use the policy to address the current need.”
In certain situations, he says, he’d recommend clients fund LTC needs out of accumulated assets and separately purchase a basic life policy to replace those assets in the estate. That way, they can continue to “meet their postmortem goals of protecting a spouse, providing for children, [fulfilling] a charitable intent, etc.”
Using Annuities
Another option is to use annuities with linked LTC benefits. They work in a similar way to hybrid insurance policies, but again, they’re not right for all clients. “Annuities with LTC riders can be a great way to help someone who might not qualify for life insurance or [someone who] may be approaching retirement to plan for LTC expenses with less red tape,” says John Alcantara, wealth management advisor at the Alcantara Financial Group, a unit of Northwestern Mutual Wealth Management Co., in Las Vegas. However, he adds, “Clients should review how payout options are affected by including the LTC riders and decide if there are more appropriate ways to pay for the care.
An LTC annuity rider, of course, comes with an additional fee. “I am not convinced adding [a long-term-care] rider to any annuity makes sense,” says Zovistoski. “When someone takes out an annuity, they are looking for tax-deferred growth, maximum income and guarantees. That is their focus. That focus gets clouded when additional fees and conditions are added.”