Long Term Care Alternative

People are living longer than ever. This means more years to enjoy retirement. However, living longer comes with a new set of challenges, including the possible need for long term care.

The long term care alternative policy (which includes the possibility of cash back along with a death benefit) is a single premium whole life policy that provides long term care benefits to help you prepare for life’s possibilities.

• If you need long term care… the long term care alternative policy provides a guaranteed pool of long term care benefits (LTC Benefit Pool) that becomes available to pay monthly long term care benefits once the eligibility requirements and a 90-day Elimination Period are satisfied. These benefits are generally received income tax free. (1)
• If you never need long term care… the long term care alternative policy is a whole life insurance policy that will pay a death benefit to your beneficiaries to help secure their financial future. The death benefit is guaranteed and is paid income tax free.
• If you have a change of plans… the long term care alternative policy provides competitive guaranteed surrender values that increase over time. This gives you the option to cancel your policy for the surrender value at any time. (2)

Long Term Care Insurance Alternative – An Example

Dan is 60 years old and planning to retire within the next five years. He has saved a substantial amount in his retirement accounts and he has additional cash reserves of $300,000 in CDs and money market funds.

Although Dan feels confident about his retirement strategy, he is concerned that if he ever needs long term care, the expenses could quickly deplete his savings. He considered buying individual long term care insurance, but decided not to because he was reluctant to pay for benefits he may never receive.

Dan could use a portion of his cash reserves to purchase a long term care alternative policy. Let’s take a look at the guaranteed benefits his policy provides:

1. The long term care alternative policy is intended to be a federally tax-qualified long term care insurance contract under Section 7702B(b) of the Internal Revenue Code, as amended. Therefore, any long term care benefits paid under the policy are generally received income tax free and a portion of the premium paid for the policy may be deductible from gross income for federal tax purposes.

Benefit payments received under the policy for Covered Services may be taxable if you receive benefit payments under other long term care insurance coverage for the same services. You should carefully consider other long term care coverage you may have before accessing benefits under this policy. Consult your tax advisor.

2. Most long term care alternative policies will be Modified Endowment Contracts (MECs). If the policy is a MEC, policy loans and/or distributions from the policy (including dividends paid in cash and full/partial surrenders) are taxable to the extent of gain and are subject to a 10% tax penalty if the policy owner is under age 59 ½. In general, the only non-MEC policies are those primarily funded with a tax-free exchange of another non-MEC life insurance policy under Internal Revenue Code Section 1035.