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Long-Term Care Settlement Option

Flexible option to face life's uncertainties

  • CheckmarkIncluded with Wealth Builder Life Insurance and Value-Added Whole Life
  • CheckmarkNo additional premium
  • CheckmarkConvert death benefit into regular periodic payments prior to death
  • CheckmarkFor those with a Wealth Builder Life Insurance or Value-Added Life Policy

About This Benefit

What Is Included?

  • No additional premium
  • LTCSO is not additional monetary benefit, but an early payout of a death benefit to the insured rather than to a designated beneficiary
  • LTCSO allows the owner of the AAFMAA policy the option of converting the death benefit on an eligible insured life—normally payable only upon the death of the insured—into regular periodic payments prior to death, specifically to defray the cost of nursing home, custodial or home health care for the insured
  • Beneficiaries continue to receive AAFMAA Survivor Assistance Services at the time of the member’s death, even if they elected LTCSO. Plus, AAFMAA Membership continues during the payout period

Who Is It For?

  • Any insured person who has attained age 60 and has been covered by an AAFMAA Value-Added or Wealth Builder Life Insurance policy for two or more years and has been confined to a long-term care nursing facility, or who has required continuous home nursing care for the preceding four months or more
  • Medical certification of need required for continued long-term care during 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 LTCSO on behalf of the insured
  • The insured must require and be receiving long-term care
  • Attending physician certification required

**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, it is not generally subject to federal or state income tax. AAFMAA provides an IRS Form 1099-LTC each year summarizing all distributions. If an irrevocable trust is the plan owner, a tax advisor should be consulted prior to exercising this option.


  • General - Standard disbursement of LTCSO benefit is monthly for a fixed period of 50 months
    • Any coverage that generates payments up to the current IRS annual tax-free maximum may be converted (maximum for 2020 is $380 per day or coverage amount of $575,000 for the 50 months)
    • The monthly payment is the approved death benefit amount as of application approval less any outstanding loans divided by 50 months
  • Administrative costs - to be paid by the policyholder and deducted from monthly payments. This fee will be modest and set to cover costs. The amount is determined when LTCSO application is approved. Fee 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 plan owner
    • Once LTCSO application approved, all subsequent premiums for amounts converted are terminated by AAFMAA
  • For any amounts not converted to LTCSO, premiums are charged or remaining amounts may be converted to Reduced Paid Up or other alternatives available

Important to Know

  • By applying the death benefit to periodic payments before death, the insurance value is impacted as of LTCSO approval by AAFMAA
  • If the policy selected for conversion to LTCSO exceeds the IRS tax-free maximum, the policy will be amended as necessary on an individual basis. Any excess insurance coverage above LTCSO amount will remain in effect with an adjusted premium
  • All other previous policy provisions and beneficiary(ies) remain unchanged
  • Once LTCSO is selected, 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 monthly payout period ends, remaining death benefit is paid to the designated beneficiary as authorized by the owner
  • If no selection is made, default is lump sum payment
  • If a value-added policy contains a designated irrevocable beneficiary, converting to LTCSO will require notarized approval by the designated irrevocable beneficiary
  • 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 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