Most consumers shopping for long-term care insurance now choose a hybrid or linked-benefit policy. Life insurance policies with an optional rider cover long-term care expenses most of the time.
Few clients are aware that there are two types of hybrid plans. Every one of them follows a particular part of the Internal Revenue Code (IRC) that defines the policy. The disparities may not be evident until the policyholder needs medical treatment. When this happens, they might be a difference between getting the intended benefits and not getting them.
What are the Two Distinct Plans in Question?
The Internal Revenue Code (IRC) defines two policies for hybrid long-term care insurance plans. The first is 7702B of the IRS code. This section relates to long-term care insurance programs.
The second is IRC 101(g). This section defines chronic illness coverage. The law clearly states that long-term care insurance offered under 101(g) cannot be promoted. The word “long-term care” is absent from the insurance company’s marketing materials. You’ll undoubtedly hear references to assisted living, home care, and nursing facilities, but not long-term care.
Why Is It Important That Potential Customers Understand This Difference?
According to the American Association for Long-Term Care Insurance, roughly 60% of new hybrid insurance contracts in 2021 met IRS Section 101(g) standards. These plans are popular with insurance agents and financial advisors because they need no specific training for financial advisors and no ongoing education for insurance agents.
Each hybrid long-term care insurance plan has benefits and drawbacks. If you ever require professional treatment, not questioning the plan you purchase might cost you a lot of money. That won’t happen for a long time, typically at least 10 years. Nonetheless, it is the primary reason you choose to purchase this coverage.
Possible Variations in Benefits and Why They Should Be Considered
Every aspect of a life insurance policy is governed by contract and described in the policy. Between the insurer and the insured, this document is legally binding. You won’t receive a copy until you’ve applied for coverage, been approved, and paid the premium. We’ll explain how to receive a sample before you buy in a moment.
Fortunately, 101(g) chronic illness riders give compensation without regard to actual treatment costs. Their indemnity or cash formula may be favorable compared to many 7702B long-term care insurance riders’ payment methods. But not all of them use reimbursement methods.
101(g) plans are chronic sickness riders, which is their main drawback. There are various situations in which a person may need long-term care. Sadly, these conditions do not meet the definition of chronic illness. Thus the policyholder is ineligible for benefits.
For over 13 years, Jason Anderson has served as a Personal Financial Advisor, Estate and Retirement Planner, helping to educate individuals from all walks of life and income levels on wise money investment and planning for a comfortable lifestyle and retirement.
Over time, Jason Anderson has become the ‘Go-To’ leading authority on personal financial advising, financial planning, and analysis, as well as retirement planning and financial planning for SMALL BUSINESS OWNERS. He also provides HIGHLY Popular financial education seminars for groups. These financial seminars empower people to more effectively budget, plan, manage their money, and achieve their personal financial goals. As a result of the excellent results, praise, and feedback that their financial seminars have received, the City of Los Angeles, The AFL-CIO union groups, as well as several other organizations, have decided to partner with Jason to more effectively accomplish their mission. He was also honored to be showcased in the November 2014 issue of Forbes Magazine “Americas Financial Leaders” and has been dubbed by the media as ‘The Financial Educator.’
Jason is passionate about the work he does because it brings him joy to help his financial planning and advising clients reach their financial goals. He finds excitement in assisting families in saving and paying for their children’s college education without stress, thanks to the financial plans he designs for them. He also takes pride in witnessing clients reach retirement and enjoy it precisely the way they desire.
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