Many life insurance policies come with an added section in the contract, usually called a long-term care rider or LTC rider, where the insurer can access a part of their policy’s death benefits each month to pay for any long-term care expenses while still living. To be able to get the benefits of a long-term care rider from the life insurance company, first, health care professionals must make sure the policyholder can’t do at least two different activities of daily living (ADLs), and that they need significant supervision from someone to protect their safety and health due to an impairment.
One of the biggest risks when investing in life insurance is that you might spend a lot of money without using the policy at the end of the day, which isn’t a very useful insurance product. With long-term care riders, premium payments might be more affordable, even if the death benefits decrease from each payment. And if you don’t use up any of the LTC benefits, then all of your beneficiaries will still receive the full death benefits.
So if you’re worried about the cost of any long-term care needs that might come in later in your life, you might want to add a long-term care rider to your policy. These riders fall into the living benefits category because if it’s activated, you’ll be receiving the life insurance policy payout before you pass away. The long-term care riders can cover nursing home care, such as skilled nursing or assisted living, or in-home care, which can include a therapist, a home health aide, or a private nurse, which can significantly help your caregivers.
The long-term care rider will pay out if you become injured, ill, or require any type of long-term care. That payout constitutes a percentage of the death benefits from your life insurance. To receive a payout, many insurance companies have very specific guidelines or eligibility requirements, such as being unable to perform some basic daily activities such as dressing or feeding yourself, or have a severe cognitive impairment.
If you are eligible for a LTC payout, the payment amount and method depends on your life insurance plan. If you have a reimbursement plan, you’ll need to lay out all the costs of your care and get reimbursed. And if you have an indemnity plan, you’ll receive a lump sum of money in an annuity. Additionally, you might not have a long-term care rider available with every type of life insurance policy, or with every insurance company. However, they are typically available with variable universal life insurance, term life insurance, indexed universal life insurance, permanent life insurance policy, and universal or whole life insurance policies.
Not only that, but a long-term care rider might even have a period of time they have to wait before they can receive their payout. And if your life or health insurance policy has a cash value when you activate the long-term care rider, you might reduce that benefit amount on your policy. The long-term care riders also come with a maximum monthly benefit which is calculated as a percentage of your policy’s monthly death benefits.
Aside from the payouts, there are still a few other benefits from long-term care riders. For example, some of them allow you to use the benefits outside of the United States, while some can provide a guaranteed minimum death benefit even if you go through the long-term care benefits from your policy. Finally, you can also ask for a long-term care rider that won’t require you to submit any receipts for your long-term care costs to receive a payout.
According to estimates from the US Department of Health and Human Services, over half of US citizens that are turning 65 are going to require long-term care services or aid during their lives. And about one in six people that do require long-term support end up spending over $100,000 out of their own pockets on care, and these are sums that can quickly diminish anyone’s savings. That can lead to a liquidation of various assets, which means not a lot of things will be left behind for loved ones.
Fortunately, with long-term care riders, people can get decent financial assistance that can cover different types of care they might need later in life, and planning this in advance can mean a world of difference when it comes to getting what you want rather than settling for less than appropriate care.
Even though long-term care riders can be costly themselves, and can make premium payments significantly higher, they’re still a lot more affordable than standalone long-term care policies. You can also get inflation protection, where the premium payments aren’t increased over time by your insurance provider.
In case you’re not sure if a long-term care rider is what you’re looking for, you might want to consider some other types of policies that can pay for your long-term care.
If you aren’t too worried about leaving your loved ones any finances, you might want to look into Medicaid. This program might be sufficient to pay for your long-term care expenses later in life. It covers any costs of long-term care that are associated with skilled nursing, assisted living, and other long-term care supports or services. One of the disadvantages to Medicaid is that it has very strict eligibility guidelines, which means you might have to pay down some of your assets before you can enroll in the program, which might leave even less money for your family members once you pass away.
Unlike the long-term care riders, traditional long-term care insurance is a standalone insurance policy. This exists specifically to cover any of the costs from care services, such as skilled nursing homes, health aides, or assisted living facilities. Additionally, unlike long-term care riders, you can customize the long-term care insurance policies and adapt them to your specific needs, even partnering them directly with Medicaid or Medicare so you can preserve your assets in case you need to apply for assistance. The downside of long-term care insurance is that it is more costly than long-term care riders, and most of these types of policies require an even more strict underwriting process.
Finally, the last option is chronic illness riders, which are a living benefit add-on, similar to the long-term care riders. For the policyholder, they allow them to access some of the insurance policy’s death benefits while they’re still alive. Their guidelines for activation are also similar to the long-term care riders, and they typically pay out when you’re unable to complete at least two different daily activities independently. However, unlike the long-term care writers, the chronic illness riders tend to only payout if insurance agents agree with medical providers that the policyholder has a terminal illness.
Policyholders that have an LTC rider with an indemnity plan should know that with such plans, they’ll end up getting a precise amount of money every month, regardless of the number of long-term care costs.
All of the benefits from long-term care riders are tax-free.