Long-Term Care Riders for Your Life Insurance Policy

A good life insurance policy can give you the peace of mind that comes with knowing your loved ones will be able to carry on financially in the event of your death. Unfortunately, the plan you choose may not help you if you need care during your lifetime. For individuals who may be worried about the cost of long-term care later in life, a long-term care rider may be worth looking into. This supplemental coverage can give you access to money while you’re still alive, helping you cover expenses such as assisted living or in-home aid. In this article, you’ll learn the basics of long-term care riders, including what they cover and who may benefit from purchasing one.

What Is a Long-Term Care Rider?

Riders are add-ons that may be purchased along with life insurance policies or annuities to provide supplemental coverage for specific circumstances. A long-term care rider offers financial protection for expenses that arise if you become injured, ill or infirm, and can’t take care of yourself. This type of rider is considered a living benefit because, if activated, it pays out prior to your death.

LTC riders may cover the following care expenses:

• Residential care such as assisted living or skilled nursing
• In-home care such as a private nurse, home health aide or therapist

LTC riders don’t typically cover physician visits, surgeries or medications.

How Does a Long-Term Care Rider Work?

A long-term care rider pays out when you become ill, injured, or infirm, requiring long-term care. The payout typically constitutes a portion or percentage of your death benefit.  

Most insurance companies provide specific guidelines that must be met for the LTC rider to pay out. For many companies, to receive this benefit, you must be unable to perform at least two of the basic activities of daily living without assistance. The inability to perform these activities may be temporary or permanent, and proof must be provided by a doctor to activate the rider.

According to the NIH, basic activities of daily living fall into the following categories: 

• Feeding
• Dressing
• Ambulating
• Bowel and bladder continence
• Toileting
• Personal hygiene

If you qualify for a payout through your LTC rider, how the payment is made depends on the type of plan you’ve selected. With an indemnity plan, you typically receive a lump sum. If you’ve opted for a reimbursement plan, you’ll have to lay out the cost of care and you'll be reimbursed. Benefits for LTC riders are typically capped at a percentage of the total death benefit of the insurance policy.

What Effect Can a Long-Term Care Benefit Rider Have on a Life Insurance Policy?

Because the payout for long-term care riders is a percentage of your life insurance policy’s death benefit, it can reduce the amount that’s left to your beneficiaries when you die. For example, if your life insurance policy pays a death benefit of $200,000 and your insurance provider allows you to access 80% of your policy for long-term care, your beneficiaries may be left with as little as $40,000 upon your death.

What Are the Alternatives to Long-Term Care Riders?

If you aren’t sure whether a long-term care rider is the right option for you, it may be helpful to consider other available alternatives to paying for long-term care.

Long-Term Care Insurance

Unlike an LTC rider, traditional long-term care insurance is a standalone policy designed specifically to cover the cost of extended care services such as assisted living, skilled nursing or visiting health aides. Unlike riders, these dedicated policies are often customizable, letting you adapt them to your specific circumstances. They may also be structured to partner directly with Medicaid to preserve your assets if you need to apply for assistance.

On the downside, standalone long-term care insurance may require a more stringent underwriting process. It may also be more costly than adding a rider to your life insurance policy.

Chronic Illness Riders

Chronic illness riders are living benefit add-ons similar to an LTC rider. As such, they allow policyholders to access a portion of their insurance policy’s death benefit while they’re still alive. Guidelines for activation are typically also similar to LTC riders, paying out when the insured can no longer independently complete at least two activities of daily living. This benefit may be used to pay for long-term care supports and services. Unlike LTC riders, however, a chronic illness rider usually only pays out if the illness or disability is deemed permanent.

Medicaid

If you aren’t worried about leaving a financial legacy for your dependents, Medicaid may be sufficient to pay for any long-term care expenses that you incur later in life. Medicaid covers costs associated with assisted living, skilled nursing and many other long-term care supports and services when the time comes. The disadvantage to Medicaid is the program’s strict eligibility guidelines, which may require you to pay down your assets before you can enroll, leaving little to nothing for your beneficiaries after you're gone.

Are Long-Term Care Riders Really Worth It?

The U.S. Department of Health and Human Services estimates that more than half of Americans currently turning 65 will require long-term support and services during their lifetime, with one in six spending more than $100,000 out of pocket. These costs can quickly deplete an individual’s savings and lead to a liquidation of assets, leaving little behind for loved ones after their death.

Long-term care riders may provide the right financial assistance to cover the care you’ll need later in life. Plus, for some seniors, advance planning can mean the difference between getting the services they need and having to settle for less-than-adequate care.

Unfortunately, riders can be costly, potentially adding hundreds of dollars to your life insurance premiums each year. Although they’re still typically less expensive than standalone long-term care policies, their cost may make them prohibitive for consumers on a modest budget. In addition, activation of the rider can diminish the death benefits that will be paid out to your beneficiaries if you should die.

Whether long-term care insurance riders are worth the cost likely depends on your individual situation. If you aren't sure of the best course of action, consult a professional. A reputable financial advisor or estate planner can often provide sound advice about the best options for your specific financial and medical needs.