Play it again, Sam. This might be one of the most misquoted lines from any movie. In the 1942 classic, “Casablanca,” starring Humphrey Bogart and Ingrid Bergman, the line misquoted is actually: “Play it once, Sam. For old times’ sake.” The line is spoken by Ilsa Lund (Bergman) in an exchange with the piano player, Sam.
In the May-June issue, I touched upon risk management as it related to long-term care. This topic generated the most comments of any article I’ve written in the last several years. I’m not going to play it again, but I will expand upon it.
Some of the comments I received were:
The ostrich approach: “I do not want to think about it.”
The pillow approach: “We have an agreement; we will not let each other suffer.”
The irrational approach: “If I purchase long-term-care insurance and don’t use it, I’ve wasted my money.”
Unfortunately, long-term care is a reality, and many of you reading this article may experience this personally or through a loved one.
The ostrich approach doesn’t work. All this does is compound the issue. In addition to addressing this risk, we recommend that you see your attorney to make sure your will, power of attorney, and advance health care directive documents are valid and up-to-date.
The pillow approach might sound good over your favorite beverage and be a great line at a party, but in reality it just won’t happen. As much as you don’t want to see a loved one suffer, you are not going to put him or her out of their misery.
The irrational approach is understandable, but it doesn’t fly. The majority of you reading this article own a home and possibly a vacation home. If you have fire insurance but never have a house fire, you’ve wasted your money. That sounds silly, doesn’t it? We all have fire insurance and we all hope we never have a fire.
In early May, I attended a conference and viewed information on a product that might allow you to have your cake and eat it, too. It is a hybrid product of universal life insurance with long-term-care benefits. It is basically designed for the affluent, since it is a single-pay product. You pay one premium and receive a contract with three potential uses.
Here is a brief overview of the product:
First, if you need long-term care, it reimburses for the cost of the care up to the monthly maximum. You have a choice of benefit periods (from 2 to 8 years) and three choices of inflation benefit options.
Second, if you die before needing long-term care, you don’t lose your money. There is a death benefit paid to the beneficiary. This amount is reduced by any loans you might have taken, money you might have withdrawn, long-term-care benefits paid or terminal-illness benefits paid.
Third, you can get your money back. You may surrender the policy at any time for the return-of-premium benefit. The one-time premium would be refunded minus any policy loans, withdrawals, long-term-care benefits or terminal-illness benefits paid under the policy.
When you self-insure the cost of long-term care, you pay for it out of your current assets. This generally may be in your money-market account, which is currently paying you next to nothing. The idea with this product is to simply reposition money to an insurance company. You are transferring some of the risk.
Here is a hypothetical example based on a female nonsmoker, issued at age 60 with a couples discount applied.
For this example, we will assume the one-time amount paid is $100,000.
The benefit selected is for 6 years with a 3 percent simple-interest inflation option.
On Day 1 when the contract is issued, the total long-term-care benefits equal $414,838. This is 4.1 times the amount paid for the contract. At age 80, the total long-term-care benefit equals $646,376. This is 6.4 times the amount paid for the contract.
If this woman never needs the long-term-care benefit, there is the money-back option. If she decides that she no longer wants long-term-care coverage, she can receive a return of the premium paid. That’s right: She can get her money back. This benefit will be reduced by any policy loans, withdrawals, terminal-illness benefits or long-term-care benefits paid under the policy.
If this woman dies before needing the long-term care, her beneficiaries receive a death benefit in the amount of $128,632, based on this hypothetical example.
This product is more than just nursing-home care. It allows you to receive in-home care or to go to a facility. If you choose to receive in-home care, there is a zero-day waiting period before benefits are reimbursable. If you choose to have care in a facility (nursing home and assisted living, adult day care or hospice care), there is a 90-day elimination period.
The intention today is to make you aware of a vehicle that might transfer risk, but only if you have the means. Again, it is a single-pay product that seems to fit the bill and provide flexibility.
As a disclaimer, this is not the policy I purchased last year. This product is offered by Pacific Life Insurance Company, which was founded in 1868. This contract was recently approved in New Jersey and is also available in Pennsylvania.
I’ve seen many products, but this one seems to be a perfect fit for those who want to self-insure the risk. The difference is, instead of paying dollar-for-dollar, the initial benefit might be four-to-one, depending on age at issue and gender. You do have to qualify for the coverage, just like annually paid long-term-care products.
The above information is a brief overview and is not meant to be an all-inclusive description of this product. If you would like to have a more in-depth explanation of this product, feel free to contact me.
Now grab your lotion, beach chair and book, and head to the beach. Relax and enjoy the rest of your summer.
Disclosure: Past performance is not indicative of future results. All indices are unmanaged and investors cannot invest directly into an index. The S&P 500 Index is a broad-based measurement of changes in stock market conditions based on the average performance of 500 widely held common stocks.
Fred Dunbar, CLU, ChFC, RFC, AIF,® is President of Planning Directions, Inc., a registered investment adviser, and Common Cents Planning, Inc. He is also a registered representative of and offers securities through Commonwealth Financial Network, member FINRA/SIPC. Advisory services offered through Planning Directions, and fixed insurance products and services offered by Common Cents Planning, are separate and unrelated to Commonwealth. Fred may be contacted at 800-647-0762, by e-mail at firstname.lastname@example.org or by mail at 239 Baltimore Pike, Glen Mills, PA, 19342. He’s always happy to meet with you ‘down the shore’ at 6606 Central Avenue N. Sea Isle City, NJ. 08243.