As a Certified Financial Planner®, I regularly come across situations where people have protection against the costs of long term care and aren’t aware of it. Many do not realize they can get protection simply by asking for it.
We can either die too soon or live too long. There is a change in our protection needs as we age. When young, our family needs to be protected against the financial impact of loss of income or a caregiver. At this time in our lives, our children are small and our mortgage is big. As time passes, our children get bigger and, hopefully, so does our income. If all goes reasonably well, we reach a point where we have less to worry about as children go off to their own adult lives. Our mortgage slims down and may even disappear. What we may not notice, or want to admit, is that as this protection need recedes, another threat advances and grows.
As we age, our ability to care for ourselves may diminish to the point that we need assistance. Since we don’t die from good health, we all face the prospect of becoming debilitated or incapacitated by whatever is pushing us to the end of our life. Some of us will become victims of diminished mental capacity, and may live with this condition for years. The cost of care can be devastating. What many do not know is that help can often be found in their life insurance policy, and it is usually free.
To understand the long term care protection embedded in many life insurance policies, we need to review a little history. In the 1980s, the AIDS epidemic was a new and little understood cause of death. Many people were destitute as they awaited their end. Some did have life insurance, but that would only pay out after they died. Enterprising individuals offered to purchase these life insurance policies from the terminally ill patients at a price far below the death benefit that would be paid out. This, the purchasers claimed, provided the terminally ill patient with much needed cash. In return, the investor became the owner and beneficiary of the death benefit to be paid out in the near future. The business of “viatical settlements,” long a tiny niche, grew and flourished.
Life insurers became concerned about individuals purchasing policies purely for speculative purposes. Today, many states regulate viatical and life settlements and many more are developing legislation and regulations. The insurance companies also took action by developing the “Accelerated Death Benefit Rider.”
This rider was attached to most new life insurance policies at issue and many companies allow it to be attached to existing policies no matter when they were issued. The owner of the policy may withdraw a portion of the death benefit if the insured is terminally ill. The benefit may vary among insurers and states. Since insurance companies are regulated by the state in which they do business, there is some difference in how and when this benefit may be accessed. In Washington State, there is a very generous definition of “terminally ill.” In fact, this definition, which is written into law (WAC284-23-620 Definitions), turns many life insurance policies into a form of protection against the costs of care near the end of life. Best of all, this rider is usually put on existing or newly issued policies at no cost! Why would an insurance company do this? They simply don’t want their life insurance policies, which were designed to protect the purchasers, from being used as a speculative tool.
Washington State defines terminally ill as having the “reasonable expectation” of less than 24 months to live. The law goes on to name several specific medical conditions that would trigger this benefit, no matter how long the life expectancy. It even requires the benefit to be available when the insured has “any condition which requires either community-based or institutional care.” It also allows the benefit to be available when “any condition which usually requires continuous care in any eligible institution …if the insured is expected to remain there for the rest of his or her life.” This seems to include coverage, for example, for an institutionalized dementia patient. There are many other specific designations in this law, all of which provide access to a life insurance death benefit for the insured. The money accessed from the policy does not have to be used specifically for long term care costs. It can be used for anything.
The big advantage of long term care protection inside a life insurance policy is that a benefit is guaranteed to be drawn from a life policy. Long term care insurance is a form of term insurance. If you own a policy and pay premium for years, or even decades, and you die without drawing any benefits, you paid for something that has no value after your death. With a life insurance policy, you can draw the money out if you need it for end of life care. If you die without drawing anything out, the full death benefit is paid to your beneficiaries. Someone always benefits from the life policy strategy.
Do you have an old life insurance policy? Would you like to find out if it contains this potential protection against end of life costs? Would you like to compare the cost of long term care insurance against the coverage by a life insurance policy? Have you been declined for long term care insurance? In many case, you may still qualify for life insurance. Give us a call for a no cost or obligation opinion on what your options are. For a free copy of the law and it’s definitions, just give us a call.
Questions or comments? paulstevick@allstate.com
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