Long-Term Care Protection Using Life Insurance Or Annuities

The provisions of the Pension Protection Act (PPA) of 2006 provide new tax benefits for what are often referred to as long-term care combination plans. These new benefits apply for life insurance policies and annuity contracts. PPA permits tax-free distribution of life insurance or annuity cash value to pay for long-term care (both beginning in 2010). As a result, you now have multiple ways to accomplish your long-term care planning. There is, of course, traditional long-term care insurance that you can buy on an individual basis or through your employer. These new products are also available on an individual basis or, increasingly, through a plan offered by your employer.

Why Are People Interested In These Options?

These combination products address one of the common objections of consumers to "stand-alone" long-term care insurance -- "wasting" the premiums if they never need long-term care. In fact, policies may offer a Return of Premium option (you could say a Money Back guarantee) that allows for a full refund of your premium at any time.

Life Insurance and Long-Term Care Benefits

You can obtain two forms of very valuable protection in one convenient policy. Some companies offer recurring premium policies which may be more attractive to middle-aged buyers. Others offer single-premium policies that can be attractive to older consumers with invested assets they have set aside to "self-insure" their health and long-term care needs in their retirement years.

Like all life insurance policies these policies pay a death benefit to your beneficiaries. What makes them special, however, is your ability to use as much of your death benefit as you need to pay for qualifying long-term care costs.

The second approach is the "optional rider" policy design. The base policy you buy is permanent life insurance (as opposed to term life) and the long-term care benefit protection is provided through an optional rider. Often these policies involve a recurring premium payment.

Some policies will provide multiples of long-term care benefit options. So, say you purchase $200,000 of life insurance; you could have access to $400,000 to pay for qualifying long-term care costs. Any portion of your death benefit not used for long-term care will go to your beneficiaries as a death benefit.

Annuities and Long-Term Care Benefits

Currently, there are only a few insurance companies that make available an Annuity+LTC combination offering. But a number of companies have products on the drawing board a result of the Pension Protection Act of 2006 that allows for tax-qualified long-term care benefit payments from annuities beginning in 2010.

Items To Know About Long-Term Care Insurance

If you are thinking about long-term care insurance, here are the most important things to know:

1. You must health-qualify for long-term care insurance. Not everyone can. Because health changes, especially as you grow older, it's smart to look into this well before you reach retirement age (your 50s are generally the best time to start).

2. Long-term care insurance can be far more affordable than most people think. Cost is an issue; so you need to know there are many ways to make this protection affordable.

3. Rates (Premiums) can vary significantly from one insurer to another. Each insurer has pricing "sweet spots" based on your age when applying. Available discounts and options can vary too. It's a reason to work with someone with access to policies from multiple insurers.

For example, here are yearly rates for basically equal coverage from four insurers for a couple ages 60 and 55. $3,133 (Genworth). $3,138 (John Hancock). $4,301 (New York Life). $5,148 (Northwestern Mutual). As you can see, it is important to speak with a knowledgable professional able to get you the best coverage for the best rate.

4. Health qualifications can also vary from one insurer to another. If you're in great health, don't use tobacco products, take no medications -- then every insurer will accept you. Each insurer sets their own health-qualifications and they change from time to time. Be prepared to share information with an insurance professional. You want them matching you with the company offering the best protection for the best price.

5. You're only going to buy long-term care insurance once. Deciding to buy long-term care insurance is a financial and emotional decision. But, it's different than buying car or home insurance, which people switch from time to time. It's almost never economically advantageous to switch (primarily because costs are based on your age at application). Many people sell long-term care insurance. Make sure you work with someone who really knows this business. It will save you money and yield benefits for many years to come.