Covering the costs of long-term care: 7702B vs. 101(g) – a discussion of riders on a life insurance policy
If your clients need both life insurance protection and a relatively affordable way to pay for potential long-term care costs, they may want to consider purchasing a life insurance policy and one of the two types of riders available: a long-term care rider (IRS section 7702B) or a chronic illness rider (IRS section 101g).
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How will your clients cover LTC costs?
As your clients get older, many will develop health conditions that require ongoing care or support, which can be expensive. With long-term care costs reaching ever-higher levels, what will your clients do?
This white paper can help you understand how two different life insurance riders – long-term care riders and chronic illness riders – may be able to help.
Paying for long-term care
How clients plan to pay for potential long-term care costs will often depend on their current standard of living and the guidance they receive from their advisors. Their options include:
- Self-insurance – This will only work if they have sufficient funds to set aside. Some use this strategy simply because they hope they won’t need long-term care.
- Government programs (Medicare or Medicaid) – Unfortunately, Medicare only covers a few LTC expenses and Medicaid is only available to those with few, if any, assets.
- Some form of long-term care insurance – If they want to plan ahead, this may be their best option.
Two insurance options available today
1. Stand-alone LTC insurance policies.
At one-time, stand-alone long-term care insurance policies were the primary solution for insuring against potential long-term care expenses. Early generations of these products often provided rich benefits and were popular for a number of reasons, among them:
- Lifetime cost of living adjustments to protect against inflation.
- Policies may qualify for state Long-Term Care Partnership programs, a joint federal-state program where applicants for Medicaid are permitted to keep one dollar of assets for every dollar of long-term care insurance coverage paid on their behalf.
- Premiums may be deductible for income tax purposes.
- Premiums pay only for long-term care coverage — no additional costs for other insurance benefits that may not be wanted. Stand-alone long-term care insurance remains an important option for clients. The marketplace has changed, however. Clients may find that fewer insurance companies offer these products and some of the popular features found in earlier generation products have been limited or are no longer available.
2. Life insurance with a rider to help pay LTC costs.
Unlike stand-alone policies, a life insurance policy with a rider can provide a certain amount of flexibility. The policyholder can use a portion of the cash value to supplement retirement income or accelerate some or all of the policy death benefit to help pay long-term care expenses. Any portion of the policy that isn’t used for those purposes, can be left as a death benefit for heirs.
Two main categories of riders
- Long-term care riders – sometimes called section 7702B riders
- Chronic illness riders – sometimes called section 101(g) riders
Why the right rider matters
Meet George and Claire
This case study compares George’s long-term care rider with Claire’s chronic illness rider, and illustrates how consumer protections can mean the difference between having coverage and having to go without.
A business-owned policy
This case study shows why a long-term care rider might be a better option than a chronic illness rider, if a company wants to protect themselves in the event of a top executive’s death or long-term care disability.
Financial Professional materials
The Long-Term Care Servicessm Rider is available with Equitable Financial Life Insurance Company and Equitable Financial Life Insurance Company of America’s (Equitable America) universal and variable universal life insurance policies. It is designed for clients who need both life insurance protection and a relatively affordable, effective way to pay for potential long-term care costs. The Long-Term Care Servicessm Rider is available for an additional charge and does have restrictions and limitations. Clients may qualify for the life insurance but not the rider.
Life insurance products are issued by Equitable Financial Life Insurance Company (Equitable Financial) (New York, NY) or Equitable Financial Life Insurance Company of America (Equitable America) and co-distributed by affiliates Equitable Network, LLC (Equitable Network Insurance Agency of California in CA; Equitable Network Insurance Agency of Utah in UT; Equitable Network of Puerto Rico, Inc. in PR) and Equitable Distributors, LLC. Variable Life insurance products are co-distributed by Equitable Advisors, LLC (member FINRA, SIPC) (Equitable Financial Advisors in MI and TN) and Equitable Distributors, LLC. For New York state-based (i.e., domiciled) financial professionals, life insurance products are issued by Equitable Financial Life Insurance Company (New York, NY). All companies are affiliated and directly or indirectly owned by Equitable Holdings, Inc., and do not provide tax or legal advice.
The obligations of Equitable Financial and Equitable America are backed solely by their claims-paying abilities.