Competency 15 Section 2 Flashcards
Long-term care insurance can provide some predictability for an otherwise
unpredictable long-term care financing risk.
True. Long-term care insurance helps clients understand how much they will have to
pay for long-term care. If a client self-insures and pays out of pocket, the financial
risk becomes much more unpredictable. The amount of time someone will need
long-term care varies from a few months to many years and costs can vary
accordingly. (LO 15-2-1)
- Government programs are the preferred long-term care financing option for clients
who want flexibility with their long-term care services and locations.
False. While government programs are important long-term care planning features
for many clients, they offer fewer options for care services and settings than longterm
care insurance or other planning options. (LO 15-2-1)
- The smallest market for long-term care insurance is wealthy clients because they
can afford to pay their long-term care costs out-of-pocket.
False. The largest market for long-term care insurance is wealthier individuals. (LO
15-2-1)
- The ideal asset range for a couple looking to purchase long-term care insurance is
from $100,000 to $200,000 in assets outside of their home.
False. Affordability is an issue for a couple that has less than $200,000 of assets
outside of their home. (LO 15-2-1
- Since 2000, long-term care insurance premiums have decreased, making policies
more affordable
False. Policy premiums have been increasing over the past decade. (LO 15-2-1)
- The average person purchasing life insurance is roughly 70 years old and a few
years into retirement
False. The average purchaser of long-term care insurance is still working, typically
in their 50s (average age is 57), and purchases long-term care insurance when
first starting to really plan for retirement. (LO 15-2-1)
- The main reason long-term care insurance premiums have been decreasing is
because insurance companies mistakenly assumed almost 99% of insureds would
keep their policies and not let them lapse.
False. Long-term care insurance premiums have been increasing mostly due to
faulty assumptions about persistency rates. Insurance companies expected
roughly 95% persistency, while actual persistency rates have been between 99-
100% in the past decade. (LO 15-2-1)
- The standard long-term care elimination period is 30 days.
False. The standard long-term care elimination period is 90 days. (LO 15-2-2)
- Most long-term care insurance policies require an inability to perform at least two
activities of daily living for at least 90 days as a benefit trigger.
True. (LO 15-2-2)
10.A 90-day calendar elimination period can be longer than a 90-day service
elimination period
False. If a patient is receiving services on every day of the week, a 90-day service
elimination period will be the same as a 90-day calendar elimination period.
However, a 90-day service elimination period will never be shorter than a 90-day
calendar elimination period. (LO 15-2-2)
11.Choosing a service day elimination period over a calendar day elimination period can lower the policy’s premium.
True. A service day elimination period is a larger deductible than a calendar day elimination period, thereby decreasing the benefit amount. (LO 15-2-2)
12.A non-tax qualified long-term care insurance policy can allow for long-term care coverage based on a medical necessity
True. Non-tax qualified long-term care insurance policies have more flexibility to define benefit triggers than qualified policies. (LO 15-2-2)
13.A $5,000 monthly limit indemnity policy and a $5,000 monthly limit cash policy will always pay out $5,000 a month in benefits to an insured
False. An indemnity policy only pays out if the person is receiving care. (LO 15-2-2)
14.Single lump sum long-term care premiums are a common and widely used payment plan for long-term care insurance policies
False. Single lump sum premiums are not offered very often anymore. (LO 15-2-2)
15.Inflation protection is required on all long-term care policies.
False. Inflation protection is a common policy feature or rider and is required for certain government benefits, but it is not required in all policies. (LO 15-2-2)
16.Some long-term care insurance policies offer inflation protection riders linked to the consumer price index
True. (LO 15-2-2)
17.Inflation protection contract features and riders are expensive; forgoing this option can be an effective way to reduce premium payments.
True. (LO 15-2-2)
18.Future purchase options can be a useful contract feature for young clients looking to build a base policy to protect their insurability
True. Future purchase options give the insured the ability to add onto the policy at a future date and protects the client’s insurability. (LO 15-2-2)
19.Return of premium riders are very expensive long-term care insurance policy options and are not commonly available today
True. (LO 15-2-2)
20.The main benefit of a tax qualified long-term care policy over a non-tax qualified policy is that the benefits paid under the tax qualified policy are received tax free by the collecting insured.
False. The main benefit of a tax qualified plan is that the premiums may be deductible in certain instances. (LO 15-2-3)
21.Tax-qualified long-term care policies must be guaranteed renewable
True. (LO 15-2-3)
22.The majority of long-term care insurance policies sold are tax-qualified
True. 95% of long-term care insurance policies are tax qualified. (LO 15-2-3)
23.Non-tax qualified plans can offer advantages over tax-qualified plans by offering more liberal benefit triggers and lower premiums
True. Non-tax qualified plans can offer benefit triggers for medical necessities. Additionally, these plans can have longer elimination periods and less generous features that can reduce premium amounts. (LO 15-2-3)
24.In 2013, an individual can deduct some of his or her tax-qualified long-term care policy premiums as an itemized medical expense to the extent that the medical expenses exceed 10% of his or her Adjusted Gross Income.
True. Long-term care premiums are only deductible as an itemized expense to the extent they exceed 10% of the insured AGI in 2013 up to the stated age based amounts. As such, an individual might not be able to deduct all or any premiums but can deduct some up to the age based amounts if the other qualifications are met. (LO 15-2-3)
25.Tax-qualified long-term care insurance policy premiums paid by an employer are 100% tax deductible as a business expense for the employer
True. (LO 15-2-3)
26.10-pay qualified long-term care insurance policies can be an effective and attractive executive compensation benefit
True. (LO 15-2-3)
27.Any long-term care insurance premiums paid for an individual as a gift by another individual count against the $13,000 federal gift tax exclusion
False. (LO 15-2-3)
28.HSA accounts cannot be used to pay long-term care premiums but can be used to pay out-of pocket long-term care expenditures without negative tax implications.
False. HSA accounts can be used to pay certain long-term care premiums up to a specified age based amount tax free. (LO 15-2-3)
29.Unlike the federal government, state governments do not offer any long-term care insurance tax benefits.
False. 30 states offer some type of long-term care insurance tax benefit. (LO 15-2-3)
- Which of the following statements best describes why long-term care insurance premiums increased significantly in the 2000s? (LO 15-2-1)
A. Long-term care benefits became much more robust.
B. The cost of long-term care expenditures grew significantly faster than expected.
C. Less policy holders renewed their policies, lowering the amount of funds available to insurance companies to pay out benefits.
D. Persistency rates were higher than expected.
- The answer is D. The persistency rate was too low. Most insurance companies were expecting persistency rates near 95%/year but in actuality they were near 99-100%/year. This resulted in not enough premiums to cover the existing policies.
22. If a client wanted to self-fund a significant portion of his or her long-term care expenditures out of pocket, but wanted to have some backside protection with minimum premium costs, which of the following elimination periods would this client prefer? (LO 15-2-2) A. 90 calendar day elimination period B. 90 service day elimination period C. 60 calendar day elimination period D. 60 service day elimination period
- The answer is B. A shorter calendar day elimination period is more expensive, and the calendar day elimination periods are more expensive than service day elimination periods. This would enable the client to cover the first 90 days of service charges out of pocket but still enable him or her to have some long-term care insurance protection at the cheapest comparative cost.
- Which of the following statements is true regarding long-term care policies? (LO 15-2-3)
A. Benefits paid from a non-tax qualified LTC policy are not received tax-free by the insured.
B. Premiums paid by the insured for a tax-qualified cash LTC policy may be deductible.
C. Premiums paid by the insured for a tax-qualified indemnity LTC policy are not deductible.
D. Non-tax qualified LTC policies are always guaranteed renewable.
- The answer is B. Benefits received from a non-tax qualified long-term care insurance policy can be received tax-free. Premiums paid for tax qualified cash and
indemnity policies can be deductible up to certain amounts. Non-tax qualified long-term care policies do not have to be guaranteed renewable
- Which of the following statements concerning a self-employed individual’s long-term care insurance premiums is (are) correct? (LO 15-2-3)
I. When a self-employed individual uses company money to pay for LTC insurance premiums, 100% of the premiums are deductible.
II. When a self-employed individual uses company money to pay for LTC insurance premiums, the amount paid for the premiums is excluded from the self-employed individual’s adjusted gross income.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
- The answer is D. 100% of the premiums are deductible up to the stated Eligible Limits. The amounts paid for LTC insurance premiums are part of the self-employed individual’s AGI
- All of the following are examples of people who should consider long-term care insurance EXCEPT (LO 15-2-1)
A. A single 55-year-old man in good health with $200,000 of assets outside of his home
B. A single 35-year-old female in good health with $100,000 of assets outside of her home
C. A married couple, ages 60 (male) and 55 (female), with $400,000 of assets outside of their home
D. A married couple, ages 60 (male) and 55 (female), with $4,000,000 of assets outside of their home
- The answer is B. While there is no upper limit on assets for long-term care, affordability is an issue with individuals below $100,000 in assets outside the home and couples below $200,000 in assets outside the home
- Which of the following statements best describes why long-term care insurance premiums increased significantly in the 2000s? (LO 15-2-1)
A. Long-term care benefits became much more robust.
B. The cost of long-term care expenditures grew significantly faster than expected.
C. Less policy holders renewed their policies, lowering the amount of funds available to insurance companies to pay out benefits.
D. Persistency rates were higher than expected.
- The answer is D. The persistency rate was too low. Most insurance companies were expecting persistency rates near 95%/year but in actuality they were near 99-100%/year. This resulted in not enough premiums to cover the existing policies.
22. If a client wanted to self-fund a significant portion of his or her long-term care expenditures out of pocket, but wanted to have some backside protection with minimum premium costs, which of the following elimination periods would this client prefer? (LO 15-2-2) A. 90 calendar day elimination period B. 90 service day elimination period C. 60 calendar day elimination period D. 60 service day elimination period
- The answer is B. A shorter calendar day elimination period is more expensive, and the calendar day elimination periods are more expensive than service day elimination periods. This would enable the client to cover the first 90 days of service charges out of pocket but still enable him or her to have some long-term care insurance protection at the cheapest comparative cost.
- Which of the following statements is true regarding long-term care policies? (LO 15-2-3)
A. Benefits paid from a non-tax qualified LTC policy are not received tax-free by the insured.
B. Premiums paid by the insured for a tax-qualified cash LTC policy may be deductible.
C. Premiums paid by the insured for a tax-qualified indemnity LTC policy are not deductible.
D. Non-tax qualified LTC policies are always guaranteed renewable.
- The answer is B. Benefits received from a non-tax qualified long-term care insurance policy can be received tax-free. Premiums paid for tax qualified cash and
indemnity policies can be deductible up to certain amounts. Non-tax qualified long-term care policies do not have to be guaranteed renewable
- Which of the following statements concerning a self-employed individual’s long-term care insurance premiums is (are) correct? (LO 15-2-3)
I. When a self-employed individual uses company money to pay for LTC insurance premiums, 100% of the premiums are deductible.
II. When a self-employed individual uses company money to pay for LTC insurance premiums, the amount paid for the premiums is excluded from the self-employed individual’s adjusted gross income.
A. I only
B. II only
C. Both I and II
D. Neither I nor II
- The answer is D. 100% of the premiums are deductible up to the stated Eligible Limits. The amounts paid for LTC insurance premiums are part of the self-employed individual’s AGI
- All of the following are examples of people who should consider long-term care insurance EXCEPT (LO 15-2-1)
A. A single 55-year-old man in good health with $200,000 of assets outside of his home
B. A single 35-year-old female in good health with $100,000 of assets outside of her home
C. A married couple, ages 60 (male) and 55 (female), with $400,000 of assets outside of their home
D. A married couple, ages 60 (male) and 55 (female), with $4,000,000 of assets outside of their home
- The answer is B. While there is no upper limit on assets for long-term care, affordability is an issue with individuals below $100,000 in assets outside the home and couples below $200,000 in assets outside the home.
