Should I Buy Life Insurance With a Long-Term Care Rider?
Long-term care insurance (LTC) is a type of insurance that can help pay for long-term care costs that aren't covered by health insurance, Medicare, or Medicaid. This could range from prescriptions to home cooking and cleaning assistance.
Many life insurance companies now offer combined life insurance policies that include LTC benefits. These are referred to as long-term care riders. An LTC rider can provide valuable protection if you find yourself in need of medical services that you could not otherwise afford.
What is a long-term care rider?
A long-term care (LTC) rider is a feature of a life insurance policy that allows you to receive a portion of the death benefit — the money paid to your beneficiary after you die — while you are still alive. The funds can then be used to cover long-term care costs.
This rider is similar to the accelerated death benefit found in most life insurance policies, but the qualifications are slightly different. While the accelerated death benefit is triggered by a terminal illness diagnosis, an LTC rider can be triggered by a chronic illness that renders you unable to care for yourself.
LTC riders are typically available only through certain types of permanent life insurance policies, such as whole, universal, or variable policies. This benefit is much more uncommon among term life insurers.
If you want to include an LTC rider, you must select it when you buy your life insurance policy. If you decide to add an LTC rider, your overall premium costs will rise.
How does an LTC rider work?
The long-term care rider allows policyholders to use their permanent life insurance death benefit while still alive. A licensed healthcare professional must certify that you have a chronic illness that prevents you from performing at least two of the six activities of daily living (ADL), such as eating, bathing, or dressing, in order for you to receive the death benefit.
A doctor may also diagnose you with a chronic illness or cognitive impairment. The following are some examples of qualifying illnesses:
- Alzheimer's disease
- Arthritis
- Asthma
- Cancer
- Crohn's disease
- Cystic fibrosis
- Diabetes
- Epilepsy
- Heart disease
- HIV/AIDS
- Mood disorders
- Multiple sclerosis (MS)
Many other diseases may be classified as chronic illnesses, but the final decision will be made by your insurance provider.
To be diagnosed with a qualifying chronic illness, a licensed health care professional must typically certify that you have a chronic illness that prevents you from performing at least two of the six activities of daily living (ADL):
- Eating
- Bathing
- Dressing
- Toilet use (perform personal hygiene functions)
- Transferring (getting in and out of bed or a chair without assistance)
- Maintaining continence
You must demonstrate the impairment for 30, 60, or 90 days before the insurer will pay any benefits. This is known as the elimination period. The insurance provider will begin to reimburse long-term care costs once the impairment has been certified.
What does an LTC rider pay for?
In most cases, the combined LTC and life insurance policy will pay for services that assist you in performing ADLs. If you are unable to perform ADLs, an LTC rider may pay for in-home care or admission to a long-term care facility.
Long-term care rider benefits payouts
Typically, an LTC rider will offer two payment options: lump sum or monthly payment. The most basic is the lump-sum payment. In this case, once you receive the insurance company's check, you are free to spend the funds on living or medical expenses.
Monthly payments or reimbursements may require a little more effort. You would be reimbursed for the amount you spent on long-term care during the previous month under this payout plan. It is critical that you keep accurate records of your long-term care costs and submit the receipts to your insurance company under this arrangement.
You may be given the option to choose between these two options, but some insurers will make the decision for you, so make sure you understand your options before adding it to your policy.
Should I purchase a combo life insurance policy?
When deciding whether a combo life insurance policy — or a policy with an LTC rider — is right for you, there are several factors to consider. Most importantly, if you use the LTC rider, the amount of money your loved ones will receive from the policy after you die will be reduced. As a result, if you need income protection, such as paying for a mortgage or college tuition, a combo life insurance policy should not be your sole life insurance policy. Combo policies are designed to be used in conjunction with permanent life insurance to cover long-term care needs. If you only need basic death benefit coverage, we recommend a term life insurance policy, which is significantly less expensive.
There are, however, some advantages to purchasing life insurance with an LTC rider. One significant advantage is that premiums for a combo policy are fixed. The provider of a stand-alone long-term care insurance plan may raise premiums on an annual basis.
- For example, Genworth, one of the largest long-term care insurance providers, raises policy premiums yearly with the approval of state regulators. A combo life insurance plan, on the other hand, guarantees a consistent premium rate.
You will also receive a return on your premium. If you require long-term care, the premiums you paid into the policy can be refunded to you and used to cover your care costs. Even if you never require long-term care, your policy continues to function as standard life insurance, paying a death benefit to your beneficiaries when you die.