This form of insurance combines life insurance and long term coverage. In the event that you need long term care, you can accelerate your death benefit and receive payment for your long term care as living benefits. These are also called hybrid or linked benefit plans.
Asset Based Long Term Care can come in the form of permanent life insurance or an annuity. With an annuity, you pay premiums up front that the annuity will pay back to you when you need care. The money will have gained interest and will sustain your care.
A permanent life policy will also likely require an up front lump-sum premium payment or the option for monthly or annual payments. When you need long term care, you will receive your living benefits. A whole life policy will require you to pay guaranteed rate premiums for the duration of your policy in order to keep your coverage in effect. Unlike most long term care insurance, the cost of your long term care is guaranteed to remain the same.
Most policyholders pay their premiums out of non-retirement accounts, the cash value of other life insurance products, or annuity products. You can also fund a plan through equity in your home, income, savings, a health savings account, and sometimes a retirement account. You can often choose to pay premiums within 5, 7, 10, or 20 payments.
Benefits are tax-free to the policyholder. Your long term care benefits will be disbursed as it is with standard long term care: as a percentage of your benefit. You will gain access to 2% of your benefit each month to go toward your long term care expenses.
Your asset based long term care policy can cover your healthcare costs for home health care, care in a nursing home, hospice care, and other long term care service options. Most people over age 65 end up needing long term care. Women need 3.7 years on average and men need care for a median of 2.2 years. Older people living alone are also more likely to require assistance performing the activities of daily life. Under long term care, you can also cover homemaker care including meal preparation, housekeeping, grocery shopping, and taking care of your pets.
If you never end up needing long term care, your beneficiaries will still receive the full benefit, just as with any permanent life policy. You are thus guaranteed to get something out of paying your premiums. You can also decide to surrender your coverage and cash out your policy, with a surrender fee deducted as a percentage of your account value.
The death benefit, at least what remains once you have tapped into it for long term care, will be passed on to your beneficiaries. This will help your loved ones to pay for your funeral and burial, while also helping them to pay for medical expenses, debts, or any other expenses as they see fit.
In recent years life insurance has changed dramatically for the better. In certain circumstances, you can access your death benefit while you are alive! You heard that right. In the event of a qualifying illness, a portion of your benefit amount can be advanced to you, so that you can use it while you are still living.
We call this policy feature a “Living Benefit.” Often, there is no additional cost associated with these living benefits; they are built right into the policy. You can use the money to offset medical bills, replace lost income from missed work, or any other needs you and your family might have.
With Living Benefits, life insurance protects not only your family, but it protects you as well. It’s a win-win.
Let’s take a look at the (3) most common types of Living Benefits and the events that might trigger them:
This is commonly defined as a chronic illness that is not recoverable and the individual is unable to perform 2 out of the 6 “activities of daily living” or has a cognitive impairment such as Alzheimer’s or dementia. The 6 “activities of daily living” (or ADL’s) are defined as follows:
If you are unable to perform at least 2 of these 6 activities, you could qualify to use your life insurance Living Benefit. Most companies will accelerate up to 24% per year, meaning a $1,000,000 policy could yield your family up to $240,000 a year in the event of a chronic illness. Talk about peace of mind! (The net amount that you receive may differ based on the companies policy and contract terms, but the bottom line is that you will have access to benefits while you’re alive!)
What if you’re not chronically ill, but have an acute illness? Here is a list of some major acute illnesses:
If one of these situations occurs you may be entitled to access your death benefit. Some companies will accelerate your death benefit up to 90 or even 100%! (The net amount that you receive may differ based on the companies policy and contract terms, but the bottom line is that you will have access to benefits while you’re alive!)
Terminal Illness is commonly defined as having less than 24 months to live. In this case, you may be able to receive up to 90 or even 100% of your death benefit. (Like the Critical Illness and Chronic Illness Living Benefit, the net amount you receive may differ based on the company policy and contract terms. However, this is a good guideline).
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