Non-Traditional Long-Term Care Insurance Alternatives
Long-term care (LTC) is a significant concern for many clients, especially with the high costs associated with services. Traditional long-term care insurance (LTCi) can be appealing, but its "use-it-or-lose-it" structure is often a deterrent for those hesitant to commit. At Schiff Executive Benefits (SEB)
, we understand that different clients have different needs, and sometimes, a creative solution can provide the protection they need without the drawbacks of traditional LTCi.
With the cost of LTC services ranging in the tens of thousands annually, it’s no surprise that many Americans struggle to feel confident about their ability to pay for such care in the future. Approximately one-third of individuals aged 65 and older express concern over their financial readiness for potential long-term care needs. Offering alternatives to LTC coverage can help alleviate this worry and provide both peace of mind and financial savings.
Below, we outline four alternative options that can serve as practical solutions to the standard LTCi policy.
1. Short-Term Care Insurance (STCi)
For clients who either can’t afford traditional LTCi or may not qualify, short-term care insurance (STCi) offers a practical alternative. In fact, nearly half (49%) of long-term care insurance claims last one year or less, according to the American Association for Long-Term Care Insurance. This is precisely the type of care that STCi covers, making it a smart choice for many clients.
STCi plans typically offer coverage for a limited time frame (up to one year) and are often available at lower premiums than traditional LTCi policies. STCi also provides more lenient underwriting and higher issue ages (some plans available up to age 89).
- More affordable premiums compared to traditional LTCi
- Flexible funding options (CDs, savings, IRAs)
- Return of premium option — clients can recover their investment if the policy is surrendered
- 0-day elimination period in many cases
- Less stringent underwriting
2. Annuity/LTCi Combination Products
Annuity/LTCi combination products provide a unique solution that combines the benefits of an annuity with long-term care protection. These asset-based solutions allow policyholders to use the accumulated value of an annuity to cover LTC expenses. What makes this option particularly appealing is that any gains used for LTC are tax-free, and "part" of an IRA or 401K can be used to fund this through a tax-free rollover.
In the event that the policyholder doesn’t require long-term care, they can either leave the remaining value of the annuity to a beneficiary or continue to use it as they see fit.
Key Features:
- Single-premium product that can be funded with existing assets
- Minimal underwriting required
- Can cover multiple lives (e.g., a couple)
- Offers a continuation of benefits rider (extend LTC benefits even if the annuity value is depleted)
- Available as fixed or indexed annuities, immediate or deferred
Learn more about annuities and their role in financial planning.
3. Life Insurance with LTCi Combination Rider
Life insurance policies that include long-term care (LTC) riders combine the benefits of life coverage with the flexibility to access death benefits for LTC expenses. This provides policyholders with dual protection — a safety net for their loved ones after passing, and the ability to pay for LTC if needed.
What’s more, if LTC isn’t required, the remaining death benefit can be passed to the beneficiaries tax-free.
Key Features:
- Single, limited, or continuous premium options
- Return of premium available upon policy surrender
- Inflation protection rider available
- Can cover two lives (spouses)
- Requires streamlined or full underwriting, depending on health
- Ability to convert existing life insurance policies to a life/LTCi combination through a 1035 exchange
Learn more about life insurance with an LTC rider through the National Association of Insurance Commissioners (NAIC).
4. Life Insurance with Chronic Illness or LTC Rider
For clients who are not interested in a full life/LTCi combination product, adding an LTC or chronic illness rider to a standard life insurance policy could be the ideal choice. Both riders allow policyholders to access the death benefit to cover qualifying LTC expenses, either at home or in a care facility.
This option is particularly flexible because, if LTC isn’t needed, the policy’s beneficiaries can still receive the death benefit.
Key Features:
- Multiple premium options
- No return of premium option, though the policy’s cash surrender value may be accessible
- Premiums are protected from rate increases
- Full underwriting required
- Ability to convert existing life policies (not annuities) using a 1035 exchange
For a deeper understanding of chronic illness riders, visit The American Council on Aging.
A Forgotten Tax Deduction:
Lastly, it should be note, Long Term Care Premiums can be deducted on Schedule A (form 1040), Itemized Deductions, or the self-employment health deduction and the following table apply to the deductibility for 2024 Tax Year:
- Age 40 or under: $470
- Age 41 to 50: $880
- Age 51 to 60: $1,760
- Age 61 to 70: $4,710
- Age 71 and over: $5,880
Why Schiff Executive Benefits(SEB)?
At Schiff Benefits, we understand that no two clients are alike, and neither are their long-term care needs. By offering a variety of options — from short-term care insurance to annuity/LTCi combination products — we help clients find the best solution tailored to their situation. We focus on providing flexible, cost-effective alternatives to traditional LTC insurance, ensuring that your clients have peace of mind without compromising their financial future.
Contact us today at info@schiffbenefits.com to discuss the best LTC solutions for your clients.