Latest news: There are rumors circulating among key contacts who work with the MN legislature that there are discussions about passing a bill before the 2024 election. We are working to verify that information.
A draft of a bill that is similar to the Washington State legislation was introduced in 2021. HF1664 has had no published updates or committee hearings since it was introduced. As drafted, the bill provides 365 Benefit Units of $100 each to eligible beneficiaries payable to qualified providers. This benefit is funded by a long-term care state payroll tax and there is no known exemption. There was also recent momentum on legislation allowing for certain Hybrids that combine term life insurance and long term care insurance as a lifestyle plan, so it seems that many things are still on the table in the land of 10,000 lakes. A link to the draft legislation can be found here.
Insurance Market Update:
- There are approximately 2,700,000 employees in Minnesota.
- There is similar product availability in Minnesota as in Washington, so BuddyIns expects the capacity of individual products in Minnesota to be similar to Washington.
START YOUR LONG TERM CARE PLAN NOW
Now is the time to begin the process of obtaining meaningful long-term care insurance (LTCi) coverage. Why? Because as we experienced in Washington, if the state announces the implementation of the payroll tax, LTCi applications may flood insurance companies. In Washington, many companies decided to exit the state in the face of high demand, creating a temporary shortage of available solutions.
Another reason to start the process of obtaining coverage is that planning early may result in the best value solution. If you begin planning when you are younger, you get a better overall value assuming your health is good. Waiting could mean that the premium costs are higher, or a health event may make you ineligible for insurance.
A LIFE INSURANCE OR LONG-TERM CARE PRODUCT THAT FITS YOUR NEEDS AND BUDGET
At BuddyIns, we recommend obtaining meaningful coverage. What does that mean for you? Meaningful coverage provides the insurance benefits that may best cover the risks you believe will impact you. The cost is affordable, and it is a plan that you can financially manage over your lifetime. The most popular solutions in Washington came from not only affordable LTCi-focused coverage but also life insurance coverage with LTC riders. Younger clients who did not have their life insurance plans used the WA payroll tax as an opportunity to protect their families with affordable hybrid policies.
The ideal candidate to purchase long-term care insurance or life insurance is someone who would have pursued coverage regardless of the tax. They may now decide to buy sooner than they would have because of the new government program and the ability to opt-out or supplement the limited state benefits.
Higher earners with more income and assets to protect may see the best value from purchasing a private plan that may also provide the benefit of being exempt from the payroll tax. If the payroll tax is a percentage of all wages, like in WA, a higher earner could pay more into the payroll tax than they could get in benefits.
For example, a 40-year-old employee is making $200,000 per year and expects her wages to grow 3% per year. If she retires at age 65, she will have put in a projected $42,293 over 25 years. If the lifetime maximum is similar to the Washington State benefit, it will be around $36,500 with nominal increases.
As the specifics of the Minnesota payroll tax to fund a minimum long-term care benefit becomes clearer, your private long-term care insurance policy may provide the coverage you need to satisfy the payroll exemption requirements. Reach out to a long-term care specialist to begin the planning process. Even if you are not ready to purchase yet, understanding your options and meeting with an LTCi specialist will allow you to act more quickly later.
LONG-TERM CARE INSURANCE-FOCUSED SOLUTIONS
Traditional Long Term Care Insurance or Life Insurance Hybrids with LTC Extension
Let’s look at some numbers by considering another 40-year-old MN employee. This employee decides he wants to purchase traditional long-term care insurance. He anticipates needing care at age 80. In this scenario, he could obtain a policy with 6 years of protection to provide a total maximum benefit of $1.1 million of tax-free LTC benefits. By adding these benefits he maintains control over his care rather than leaving it to his family to decide on their own.
By using our BuddyIns proprietary software, Benefit Buddy, we created the chart below. It reflects the impact of purchasing long-term care insurance vs. self-funding a long-term care event that begins at age 80.
- Traditional LTC Pie Chart: The “Insurance Multiplier” or the maximum amount of coverage one might receive relative to the premium at age 80. It reflects the total premiums paid versus the total long-term care benefits.
- Self-Funding Pie Chart: Reflects self-funding the total amount of care. Self-funding assumes a person earns a 5% rate of return on their savings and incurs a 20% tax rate if the investment returns result in taxable gains.
Traditional long-term care insurance is not the only option when it comes to long-term care coverage. Some hybrid options provide excellent LTCi coverage, including:
- An extension of benefits feature
- Cash value flexibility
- A death benefit if the long-term care rider is never used
Purchasing a hybrid now offers our employee above the ability to change his mind about the coverage later. That allows him to retain some or all the value of the premiums already paid into the policy.
Don’t worry. You do not have to figure all of this out on your own. A long-term care insurance specialist can help find the product that is a good value for you.
LIFE INSURANCE-FOCUSED SOLUTIONS WITH LTCI FEATURES
Permanent Life Insurance with LTC Acceleration or Term Life with Conversion Options
For those who desire life insurance, several popular options on the market also include true LTC riders. These solutions include permanent life insurance like universal or whole life. Both products have unique features and benefits at affordable rates, especially for starter plans.
There are no term life policies with true LTC riders but some strategies allow conversions. That means you can obtain term coverage today, then can convert to a permanent product and add the LTC rider later. This allows you to:
- Maximize your life insurance death benefit with term insurance now
- Maximize the flexibility and cash values with permanent insurance later
You may also do both while retaining the option to receive “living benefits” in the form of an LTC benefit that may qualify for the payroll tax opt-out.
This option might be a great choice if you are younger and have a greater life insurance need.
The deadline for purchasing private coverage is still unclear or even if there will be an opt-out with certainty. If you purchase the coverage you need now, that can be a win regardless of how the law plays out.
START NOW TO OPTIMIZE YOUR CHOICES REGARDLESS OF THE MINNESOTA PAYROLL TAX
The great news is that approximately 85% of working employees should be able to obtain coverage. Starting the process sooner rather than later can provide you with the most options and peace of mind. We highly recommend that you begin your process by speaking with a long-term care specialist.