Case study: maximum benefits limits
Jackie purchases a life insurance policy with a Long Term Care Rider that has a $50,000 monthly benefit. Twenty-five years from now, she incurs covered expenses of $28,000 per month.
• Under an indemnity policy with a 1x HIPAA limit, the most she could receive in LTC Rider benefits is $25,110 (even if she was paying for a max benefit of $50,000 per month). This means she would need to dip into her personal savings for the additional $2,890 per month
• Under a reimbursement policy without a HIPAA limit, she could get reimbursed for her actual expenses of $28,000 (all income-tax free)
By having more benefit available, Jackie gains flexibility and freedom. She can choose which facility she wants to go to (since she does not need to feel she is restricted to a facility that charges less than the HIPAA limit). She also doesn’t need to deplete her personal assets.
One might argue that an indemnity rider is preferable to a reimbursement rider because if the client’s expenses are less than their maximum monthly limit, they can take more than their actual expenses.
While this is true, keep in mind the reason your client is purchasing this LTC Rider. The goal isn’t to get “extra money.” It’s to cover LTC expenses so they don’t have to deplete their personal assets to pay for long-term care services. The more benefit the client takes in excess of their actual LTC expenses, the less time their LTC Rider benefits will last.
Case study: duration of benefits
Adam purchases a $1 million life insurance policy with a $1 million LTC Rider benefit pool, and a 2 percent monthly acceleration option. He can take up to $20,000 per month ($240,000 per year). If his actual expenses are $16,000 per month ($192,000 per year):
• A reimbursement policy would last 62.5 months (5 yrs. 2 ½ months)
• An indemnity policy where he is taking the full $20,000 would only last 50 months (4 yrs. 2 months)
At first glance, an indemnity rider may seem like the obvious choice, that your client has access to greater benefits and that they won’t need to prove expenses. But once you’ve taken the time to delve into the product details and considered reallife situations, a reimbursement rider may prove to be more beneficial.
In next blogpost, we will compare different insurance companies' LTD riders.