Merritt Personal Lines Manual: LTC and Annuities or Disability Income Insurance
LTC coverage is not only combined with life insurance policies, it can be combined with annuities and disability income insurance.
An annuity, which is designed to be a retirement vehicle, may be issued with an LTC rider in much the same way that the LTC rider may be attached to a life insurance policy. With this arrangement, the annuity provides necessary funds to help with LTC expenses. It might be said that the annuity and the LTC policy are cousins, in that annuities provide retirement income and LTC needs normally occur after retirement.
When and if needed, annuity funds will be paid to cover LTC expenses. This, of course, will have the effect of reducing the amount of money in the annuity and, consequently, the monthly retirement income may be reduced, as well.
Another progressive use of an LTC rider is in combination with a disability income policy. Disability income insurance is designed to protect a person's most important asset - the ability to earn an income. However, your disability income needs normally end at age 65 or at retirement, since you no longer have earned income.
How does this combination work? Here's an example: Jack, age 45, purchases a disability income policy to protect his ability to earn an income. He adds a Guaranteed Insurability Option (GIO), whereby he will be eligible to purchase units of LTC coverage ($10 to $50) at certain option dates from age 55 to 70, without the need to prove insurability. At age 65, Jack retires and "surrenders" his disability income policy for an LTC contract.
This appears to be an ideal mix of products, as the disability income insurance need terminates at retirement and, generally, the need for long-term care coverage begins.
In the years and decades to come, it would appear that the types of LTC policies offered will only be limited by the imagination of those responsible for product design to meet the LTC needs of the senior citizen.
The chance of an expensive stay in a nursing home is a very real risk for the senior citizen. Due to increasing life expectancy, the average length of a nursing home stay will gradually increase, as will the average expense.
The basic problem is how to pay for nursing home care. Medicare actually offers very few benefits for care in a nursing facility, especially for custodial care. Medicaid will cover nursing home expenses only for the financially needy.
Another alternative is to rely on friends and relatives for necessary care. Or you can pay for nursing home costs from present financial assets. Depending on the length and cost of such a stay, the bill could be considerable and you may exhaust available financial resources. While this would make you eligible for Medicaid, it's cold comfort for people who had planned to leave something to their heirs.
The natural solution to the problem is LTC insurance. This type of policy can protect your assets. It also gives you flexibility and freedom of choice in the selection of a nursing home. And it allows you to maintain a degree of independence.
