The challenge

An advisor approached our team about a 55-year-old client who wanted both Long-Term Care (LTC) coverage and permanent life insurance protection. The client was healthy and rated as a preferred risk. They had been funding a Whole Life policy since their early 20s, accumulating approximately $500,000 in cash surrender value (CSV), but with only a $900,000 death benefit.

The client had concerns about using an LTC rider on a Universal Life policy. Accessing the LTC benefits could reduce the death benefit for heirs, undermining their long-term estate planning goals. The client wanted a strategy to preserve full death benefit coverage while efficiently addressing future LTC expenses.

Our approach

To tailor a solution that aligned with the client’s needs, we analyzed the average cost of long-term care in the client’s home state, which was approximately $8,000 per month. Factoring in inflation, we determined the necessary single premium to fund an asset-based LTC product to provide the desired monthly benefit without eroding their permanent life insurance protection. 

Rather than opting for a traditional 1035 exchange into a single permanent product with an LTC rider, we recommended splitting the existing cash value into two distinct products. This strategy would guarantee comprehensive LTC coverage while maintaining the full death benefit, enabling the client to meet both objectives without compromise.

The solution

Using the proceeds from the client's 1035 exchange, we allocated part of the $500,000 CSV to purchase an asset-based LTC product. This product provided $8,000 per month in LTC benefits with inflation protection, offering the client peace of mind regarding future care expenses.

The remaining funds were used to purchase an Indexed Universal Life (IUL) policy with a guaranteed rider, which offered a death benefit comparable to a Universal Life policy with an LTC rider but without the drawback of reducing the death benefit if LTC benefits were accessed.

By decoupling the LTC risk from the life insurance policy, we ensured that the client could fully utilize their long-term care benefits without diminishing their permanent life insurance protection. The result was a comprehensive, flexible strategy aligned with the client’s long-term care needs and goals for permanent life insurance.

Next steps

Reach out to our team today for a second opinion on a challenging case or learn more about Modern Life’s underwriting capabilities.