There are options for long-term care insurance

I recently had the opportunity work with a client who wanted some long-term-care (LTC) coverage. He is a family man with a wife and grown kids and carries a fair amount of universal-life insurance issued back in the '80s.

In advising him I could have recommended:

• Stand-alone long-term-care coverage. But this is a use-it-or-lose-it proposition. He could pay all that premium and never need the benefits. If so, he would have wasted all that premium.

• A long-term-care-linked annuity. This is better than the first option but generally requires a single, upfront premium to be very effective and, in my experience, has limited benefits.

• A long-term-care-linked life-insurance policy. This can be paid for with relatively small monthly or annual premiums and, I believe, is the most generous approach to solving the long-term-care needs. This is what I recommended.

How does this policy work? The policy that I prefer is a regular universal-life policy that insures a person for a certain death benefit, payable at death to the beneficiary whom the owner has chosen in the application for insurance. But it is more than just that.

It also pays a monthly benefit if the insured needs institutional or home-health long-term care because of either the inability to care for oneself or because of cognitive impairment. It will reimburse eligible expenses up to two percent of the amount of life insurance per month. If benefits are reimbursed for the full two percent every month, the benefit will last for fifty months before a full hundred percent had been paid out.

The death benefit is reduced dollar-for-dollar as the benefit is paid out for long-term-care benefits.

Thus, this is not a use-it-or-lose-it proposition. Rather, it is a somebody-is-going-to-get-the-money proposition, either the beneficiary in the form of the death benefit, the owner in the form of long-term-care benefits, or part to each.

If less than the full two percent is taken in a given month, the balance can be tacked on to the end and paid out in monthly payments for eligible long-term-care expenses for the fifty-first month, then the fifty-second month, etc. until an amount equal to the full death benefit had been paid out at a rate of no more than two percent per month.

How much should he get? Well, the statistics that I have seen say that the average cost of nursing-home care can be around eight thousand dollars per month. If he wants to get that much benefit from his policy that pays two percent per month, then he needs a policy that has a four hundred thousand dollar death benefit.

But what about inflation? We know that a nursing-home costs go up every year. So, he should build in a cushion for inflation.

I recommended that he increase the coverage to seven hundred fifty thousand dollars. That will almost double the monthly amount that he can draw for long-term-care. And, presuming that full amount is not needed at least in the early years, it adds a longer payout period to the fifty months so that a longer need for long-term-care can be covered.

J. Brendan Ryan is a Cincinnati insurance agent. Reach him at jbryanclu@aol.com or 513-221-1454.