SEP IRA Contribution Limits

Course: Retirement Planning
Lesson 5: Leveraging Nonqualified Plans for Small Business and Not-For-Profit Employees and Owners

Student Question:

Hello , I am having trouble understanding how Shared Coverage is implemented. Could you help me understand with an example? 

Also, could you explain the Waiver of Premium benefits in simple words.

Shared Coverage: “For couples where each partner purchases an LTCi policy with less than a Lifetime Maximum Benefit Period, the two purchasers can elect to share the Maximum Benefit Period for the two issued policies. This election lowers the LTCi premium. The claims of each insured would be combined to determine when and if the Lifetime Maximum Benefit Limit is reached. In addition, the Waiver of Premium benefit typically applies to both policies if either of the two partners qualifies to receive benefits. This election should be made carefully, since the combined maximum benefit is half of the benefit provided by two policies with separate maximum benefits.”

Thank you


Instructor Response:

Hi M,

In some ways, shared coverage can be compared to a joint bank account.  Assume that husband and wife have a joint bank account with a $250,000 balance.  Both the wife and the husband can withdraw money from the account but once the entire $250,000 is withdrawn, there is no more money in the account.  In a similar fashion, a shared LTCi policy has a policy limit. We’ll assume the limit is $500,000. Further assume that husband had long-term care expenses of $400,000 that were paid by the LTCi policy.  Now only $100,000 of the policy limit is available for the wife’s or husband’s future LTCi need. 

Waiver of premium means that while the insured individual is receiving policy benefits, the premiums do not have to be paid—they are waived.  Assume Jane Doe owns an LTCi policy with a waiver of premium provision. If Jane has a qualifying LTC need, she is not required to pay the LTCi premiums while she has the qualifying need.  If Jane recovers, her LTCi remains in force and she simply starts paying the premiums again to maintain coverage. 

How fully does this address your question?

Onward and Upward,