Long-Term Care Settlement Option (LTCSO)

The Long-Term Care Settlement Option (LTCSO) is an accelerated payment of the death benefit of an Armed Forces Mutual whole life policy to fund any long-term care needs. Every whole life policy automatically includes the LTCSO at no additional cost. You pay only a small administrative fee (currently $20/month) only if you actually use the LTCSO.  

To qualify, you must:

• Have an Armed Forces Mutual whole life policy in effect for at least two years.
• Be at least age 60.
• Have been receiving continuous care (nursing facility or home care) for at least four months.
• Meet either of the following two criteria:
  • Suffer from chronic illness (and thus be unable to perform at least two daily living activities); or,
  • Require substantial supervision due to cognitive impairment that could threaten your health and safety.

1. Eating 

2.  

   Toileting 

3.  

   Transferring (mobility) 

4.  

   Bathing 

5.  

   Dressing 

6.  

   Continence 

Conversion requires medical certification from your attending physician confirming your need for continued long-term care during the application process. This documentation verifies that you require and are receiving appropriate long-term care services, whether in a facility or at home.

Unlike traditional long-term care insurance, which often experiences significant premium increases as you age or may even freeze enrollment, Armed Forces Mutual’s Long-Term Care Settlement Option provides stable, predictable coverage as part of your whole life insurance policy. Also, if you never need long-term care, the premiums you’ve paid into your whole life policy are still valuable. 

The standard option for disbursement of Armed Forces Mutual’s Long-Term Care Settlement Option benefit is monthly, for a fixed period of 50 months. You can convert any amount of coverage that generates payments up to the current annual maximum set by the IRS that can be received tax-free.

The monthly payment will be the amount of the approved death benefit as of the date the application is accepted (less any outstanding loan), divided by 50 months, and we will deduct an administrative fee from the monthly payment. 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 plan’s owner.

Armed Forces Mutual pays the remaining death benefit to the elected beneficiary. 

By electing to apply the accelerated death benefit to periodic payments before death, the insurance value is frozen at the amount of coverage in effect as of the date the Long-Term Care Settlement Option application is approved by Armed Forces Mutual. However, if the policy is selected for conversion to the Long-Term Care Settlement Option, and exceeds the IRS tax-free maximum, the policy will be amended as necessary on an individual basis. Any excess insurance coverage above the amount elected for the Long-Term Care Settlement Option will remain in effect with an adjusted premium. All other previous policy provisions and beneficiary(-ies) will remain unchanged. 

Once the Long-Term Care Settlement Option is elected, and all payments are made for the fixed period, there will be no residual funds from the policy portion that pass to a beneficiary. However, should the insured die 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 a lump sum payment. 

If the whole life insurance policy contains a designated irrevocable beneficiary, converting to the Long-Term Care Settlement Option will require notarized approval by the designated irrevocable beneficiary.

Once an application for the Long-Term Care Settlement Option has been approved, Armed Forces Mutual terminates all subsequent premiums for those amounts converted to the Long-Term Care Settlement Option. For any amounts not converted, there will continue to be premiums charged or remaining amounts may be converted to Reduced Paid Up or any other option selected from the many alternatives available to any policy.

The Long-Term Care Settlement Option is considered a qualified accelerated death benefit (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. 

Armed Forces Mutual will provide an IRS Form 1099-LTC each year summarizing the distribution. 

If an irrevocable trust is to be the plan owner, the owner should consult a tax advisor prior to exercising this option.

The application for and subsequent approval of the Long-Term Care Settlement Option 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 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 Long-Term Care Settlement Option at the time it is discontinued. However, once discontinued, there will be no option to reinstate a subsequent Long-Term Care Settlement Option election of that insurance policy.