Introduction
Long-term care is required for people who experience significant declines in capacity and can no longer perform the “Activities of Daily Living,” including dressing, bathing, eating, caring for incontinence, mobility, and using the toilet. Long-term care can be provided informally or formally in a variety of settings. Options for care have expanded dramatically to now include formal home care, aging in place communities, naturally occurring retirement communities, independent and assisted living facilities, and a continuum of care communities. Yet, many of these options remain cost prohibitive to the masses, resulting in family and friends continuing to provide the majority of long-term care informally and without pay; a staggering 80%, in fact[1]!
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The Good, The Bad & the Ugly of Long-Term Care
Most baby boomers who retire today can expect to live years longer than their parents or any previous generation. That’s the good news. The bad news is that someone turning 65 today has almost a 70% chance of needing to utilize some type of long-term care service in their lifetime[2]. Unfortunately, the out-of-pocket expenses associated with such services can be catastrophic, with few people having the resources necessary to meet this need[3]—this is the ugly side of long-term care.
The current state of long-term care is complicated, unfriendly, and extremely expensive. In fact, for many, it is just downright unaffordable, with long-term care costs having outpaced inflation since 2003[4]. A contributing factor to this problem is that compared with prior generations, baby boomers are more likely to be divorced, have fewer children, and have female children in the workforce. Further compounding the problem, baby boomers have often not saved enough for general retirement expenses and are especially unprepared for unplanned expenses, such as long-term care.
The Secured Split-DollarTM with Long-Term Care Program
Concerned about what a long-term care event could mean for his family, his hard-earned retirement assets, and ultimately his estate, we were approached about long-term care insurance by a credit union Chief Executive Officer. Already a Split-Dollar client, the Chief Executive Officer enquired whether it would be possible to embed a long-term care policy within the Split-Dollar structure. In doing so, this would enable the credit union to ultimately recover its benefit investment, plus interest; converting a non-recoverable benefit expense into an accreting asset.
Founded on this enquiry, and utilizing the Split-Dollar framework, BenefisCU developed the Secured Split-DollarTM with Long-Term Care Program. It involves the sponsoring organization funding the premiums on two policies; the Repayment Policy, which is focused on repaying the sponsoring organization its interests, and a Long-Term Care Policy, which has been designed to provide the participant and their spouse with Long-Term Care coverage.
By design, the Long-Term Care policy combines life insurance with long-term care coverage. The Long-Term Care Policy is issued with a specific amount of death benefit, e.g., $1 million. With this “hybrid” approach, in event of a long-term care event, the participant and/or the participant’s spouse (the “insureds”) can access the policy’s death benefit while alive to assist in paying for any long-term care expenses. Utilizing that available death benefit, the insureds are provided with their own “bucket” of Long-Term Care coverage, e.g., $500,000 each. If one or both of the insureds were to suffer a long-term care event, then after satisfying the conditions of the policy, they would begin receiving a distribution from the policy of $10,000 per month.
In the event that both of the insureds reach their respective Long-Term Care Benefits Cap ($500,000 per insured), the Long-Term Care coverage would cease, and no death benefit would be payable to the insureds’ beneficiary upon their deaths. Alternatively, if one of the insureds reach their Long-Term Care Benefits Cap and the other never accessed, then upon the death of both insureds, $500,000 of death benefit would be payable to the insureds’ beneficiary. Lastly, all of the policy’s available death proceeds would be payable to the insureds’ beneficiary if neither insured accessed their respective Long-Term Care coverages.
While it may be uncomfortable, we all need to be aware that we will likely have needs as we age, and we need to be prudent in planning for those needs financially. The Secured Split-DollarTM with Long-Term Care Program is just one way you can rest assured knowing that you, your family, your hard-earned retirement assets, and ultimately your estate, are protected should the need for long-term care ever arise.
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[1] Lisa Eckenwiler. “Caring About Long-Term Care.” July 9, 2007. Caring About Long-Term Care – Center for American Progress
[2] LongTermCare.gov. “How Much Care Will You Need?” February 18, 2020. How Much Care Will You Need? | ACL Administration for Community Living
[3] Max Richtman. “America’s long-term care crisis is worsening.” July 22. 2019. Opinion: America’s long-term care crisis is worsening – MarketWatch
[4] Genworth Financial. “Genworth 2012 Cost of Care Survey.” April 20, 2012. http://www.genworth.com/content/non_navigable/corporate/about_genworth/industry_expertise/cost_of_care.html
