Stop-Loss Long-Term Care Insurance


Stop-Loss Long-Term Care Insurance

Stop-Loss LTCi was developed from a Hybrid LTCi policy chassis to create a partially self-insured LTCi policy.  The idea was to design a product option that would fit the LTCi needs of those couples who have a net-worth between $3.5mm to $10mm+.  This is a large range, but some argue that in this range one might be able to self-insure.  We know without a doubt $15mm+ should be able to self-insure most if not all their potential LTC costs.

There aren’t any Stop-Loss LTCi policies on the market for individuals so I wanted to see if I could put together partially self-insured stop-loss product with the available policies on the market.  This is to meet the needs of a couple who have a net-worth in this $3.5mm to $10mm+ range and can take on the extra risk of not being fully insured.

Product requirements:

-It needs to have a high deductible or in this case a long elimination period

-The benefit pool needs to be large once the stop-loss is triggered

-A low or no-loss product is preferred, meaning that a benefit was going to be paid out either via long-term care claim or at death.

-The product needs to make sense financially

Case Study: Husband and Wife both age 50.


In this scenario, we are assuming that the Traditional LTCi policy does not increase in premium although history shows it most likely will.  The Hybrid LTCi policies are the base for the Stop Loss LTCi chassis and have guaranteed premiums.  We typically will choose to go with an LTCi policy over a Traditional LTCi policy except in a few scenarios.  An example would be a single male in his early 60’s.  Traditional LTCi has priced this category very well.  It’s assumed the reasoning being the known the LTCi claims history of this demographic is in the carriers favor.  Traditional LTCi does not typically payout any death benefits.

The Stop Loss LTCi has an initial elimination period of 60 days of long-term care service.  Once this has been met, there is a small initial benefit that will start paying out for the first 50 months in Illustration A or 33 months in Illustration B.  Once that 2nd elimination period has been met (50 or 33 months) by one or a combination of the husband/wife couple then the larger benefit will be paid out.  In this example we used a benefit payout starting at age 88.

The couple can each take the full benefit amount.  In Illustration B, this is almost $40,000 tax-free if they are both on claim at the same time.  This benefit will continue for as long at they are both on claim without limit.

If neither husband or wife use the long term care benefit then a death benefit will be paid out after the 2nd spouse were to pass away.

If you look at the “Total Premium Paid by Age 88” column, in most cases the clients will pay about half as much in premium by partially self-insuring the first several months.  They are not fully self-insuring because they will still receive a small amount of benefit for the first 50 or 33 months of claim (combined).

Reduce your RMD’s (Required Minimum Distribution)

RMD reduction tool:

A QLAC (Qualified Longevity Annuity Contract) allows individuals to re-allocate and shelter 25% up to $130k of their qualified assets from Required Minimum Distributions.  While this isn’t a large amount of funds it is one of the tools individuals can use to defer taxes.  Note, the amount is $130,000 per person.  For a couple it could be up to $260,000 that they could defer RMD’s up to age 85.

The Two Core Benefits:

1) Reduced RMD’s (up to 25% reduction)

2) Protection against “living too long” (substantially leveraged lifetime guaranteed income in the future)

 How QLACs work:

  • One can re-allocate 25% of IRA or $130,000 (whichever is less) to buy special QLAC deferred income annuity
  • The new QLAC allocation is excluded from RMD calculations (existing IRA still has RMDs)
  • QLAC income can be deferred until age 85, if death before 85, heirs get 100% of deposit back

Case Study:

  • Client: Male Age 70 w $520,000+ IRA and longevity in his family
  • Situation:Facing RMDs he doesn’t need, client asks his advisor for specific help on his IRA
  • Result:Advisor successfully reduces RMD by 25% and ensures a lifetime of future income equal to nearly 33% of original deposit every year for life – GUARANTEED!
  • Guaranteed Income Payment:$32,914/yr guaranteed for life (starting age 85)

Key for Individuals Who:

  • Are approaching age 70 (RMDs for first time)
  • Don’t need RMDs to live off and/or who want to reduce RMDs
  • Cringe at the thought of additional taxes (RMDs) each year
  • Want to reduce tax liability. With $25,000 Standard Deduction, reduced RMDs using a QLAC can get clients into lower total tax bracket or eliminate/reduce taxes on Social Security.
  • Are more conservative and worry about market movements and value certainty/guarantees
  • Have longevity in their family history or concerned about outliving their money

These plans are very simple to implement and can be a great tool to help reduce some of your RMD’s.