Long Term Care Settlement Option (LTCSO)
You probably already know that financing long-term health care is a widely recognized and growing problem for both society and individuals. In most cases, an individual or the family must pay for long term care out of their own pocket. We’re concerned about our AAFMAA members and realize that some insureds will eventually require long term care due to disability or chronic illness. To ensure a strong future for our members, the AAFMAA Board of Directors has approved LTCSO.
It’s important to note that this is not an additional monetary benefit but rather represents an early payout of a death benefit on behalf of the insured rather than to a designated beneficiary.
The AAFMAA LTCSO provides an owner of an AAFMAA Value-Added policy(ies) the option of converting the death benefit(s) on an eligible insured life (normally payable only on death of the insured) into regular periodic payments before death to help defray the cost of a nursing home, custodial care or home health care of the insured.
Beneficiaries still receive AAFMAA Survivor Assistance Services at the time of the member’s passing even if they elected the LTCSO and AAFMAA membership continues during the payout period.
The LTCSO is considered a qualified Living Benefit under IRS regulations. As such, the net amount of the death benefit is excluded from gross income and as long as the total annual payments do not exceed IRS guidelines is not generally subject to Federal or State income tax. AAFMAA will provide an IRS Form 1099-LTC each year summarizing the distribution. If an irrevocable trust is to be the plan owner, a tax advisor should be consulted prior to exercising this option.
| Eligibility |
Any insured person who has attained the Social Security Full Retirement Age, who has been covered by an AAFMAA Value-Added policy for two or more years and has been confined to a long-term care nursing facility, or has required continuous home nursing care for the past four months or more
Medical certification as to the need for continued long term care will be required as part of the application process
An annual recertification is necessary to ensure compliance with IRS guidelines
In cases where the insured is not the owner of the plan, it is the owner who must apply for the LTCSO on behalf of the insured
The insured must require and be receiving long term care
An attending physician’s certification will be required
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| Payment |
The standard option for disbursement of the LTCSO benefit will be monthly, for a fixed period of 50 months
Any amount of coverage that generates payments up to the current annual IRS maximum that can be received tax-free, may be converted
The monthly payment is the amount of the approved death benefit as of the date the application is approved (less any outstanding loan) divided by 50 months
An administrative fee will be deducted from the monthly payment
The administrative cost of providing this additional service will be paid by the policyholder and deducted from monthly payments. This fee will be modest and set to cover costs - the amount is set when the LTCSO application is approved and remains fixed for 50 months or until death, if earlier
Payments may be made to the owner, the insured, deposited to a bank account or paid directly to a long term care facility as designated by the owner of the plan
Once a LTCSO application has been approved, all subsequent premiums for those amounts converted to the LTCSO are terminated by AAFMAA
For any amounts not converted to LTCSO there will continue to be premiums charged or remaining amounts may be converted to Reduced Paid Up or any of the many alternatives available for any policy
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| Important to Know |
By electing to apply the death benefit to periodic payments before death, the insurance value is impacted as of the date the LTCSO application is approved by AAFMAA
If the policy selected for conversion to the LTCSO exceeds the IRS tax-free maximum, the policy will be amended as necessary on an individual basis and any excess insurance coverage above the amount elected for LTCSO will remain in effect with an adjusted premium
All other previous policy provisions and beneficiary(ies) will remain unchanged
Once the LTCSO is elected, and all payments are made for the fixed period, there will be no residual funds from the LTCSO portion that pass to a beneficiary
Should the insured pass away before the end of the monthly payout period, the remaining death benefit will be paid to the designated beneficiary in the form selected or authorized by the owner
If no selection is made, the default will be lump sum payment
If the Value-Added policy contains a designated irrevocable beneficiary, converting to the LTCSO will require notarized approval by the designated irrevocable beneficiary
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Once completed, fax the application to Policy Services toll-free at 1-888-210-4882 , email to PolicyService@aafmaa.com, or mail it to AAFMAA at 1856 Old Reston Avenue, Suite 200 / Reston, VA 20190.
The application for and subsequent approval of a LTCSO will be considered irrevocable except that an owner may elect to discontinue the option and reinstate insurance benefits as a Reduced Paid Up benefit plan if, and ONLY if, the annual recertification fails to comply with IRS code. Under this condition, the death benefit would be re-established at a level supported by the remaining value of the LTCSO at the time it is discontinued. However, once discontinued, there will be no option to reinstate a subsequent LTCSO election of that insurance policy.
PaidUp
This is a non-forfeiture option to provide continuation of the original insurance plan at a reduced amount.
Living Benefit
Under certain circumstances such as terminal or catastrophic illness, the need for long-term care, or confinement to a nursing home, you can receive the proceeds of your Life Insurance policy before you die.