A long term care rider is a life insurance policy that comes with an accelerated benefits rider that provides a cash benefit to you if you have a long term care need in a nursing home, assisted living, or in home care.
As we age, we become more susceptible to disability. As a result, older Americans are having to face the high costs associated with assisted living facilities. In 2015, the median monthly rate for assisted living facility was $3,600. Source. And residing in a nursing homes cost at least twice as much. Source. Finally, 70% of people turning 65 today will have a need for long term care. Source.
In the following post we will discuss the pros and cons of life insurance with a long term care rider. If you have any questions or would like a free consultation on the benefits of adding a long term care rider to your policy, please give us a call today.
Life Insurance with Long Term Care Rider
Buying a life insurance policy is an important thing, which is why it’s not advisable to just pick a one-size-fits-all kind of life insurance policy from right off the shelf. Sure, that’s available, but that kind of life insurance policy isn’t going to offer you the life insurance coverage that you need. That’s why life insurance companies offer riders. Life insurance riders are add-ons to your coverage that allow you to customize your life insurance policy.
You know the options you get when you buy a new car—do you want power steering, automatic windows, or leather seats? Well, life insurance policies come with options, too. They may not be as exciting as a car upgrade, but they’re probably more important. One such life insurance rider is the long term care rider. The name makes it sound important—care for a really long time—and for many it is very important. But is it something you should choose?
By working with the best life insurance for seniors, we have access to many of the best life insurance with long term care riders in the market.
Long term care rider definition
In the simplest of terms, life insurance with long term care rider can help you cover the expenses of growing old with a disability or organic cognitive disorder. Similar to long term care insurance, the insurance rider is designed to pay for the rising costs of long term care. It can be added to a permanent life insurance policy, including cash value life insurance, Indexed Universal Life Insurance or single premium life insurance with long term care rider .
Benefits are paid out income tax free after meeting the requirements. Generally, the requirements are that you are unable to perform 2 of the 6 Activities of Daily Living (ADL’s). The 6 ADL’s are Continence, Bathing, Eating, Dressing, Toileting, and Transferring (getting around). Cognitive disability is an additional qualifying event that triggers a long term care rider.
The pay out for a life insurance long term care rider comes out of the policy’s death benefit. If you never use the LTC rider, your life insurance beneficiaries will receive your full death benefit. However, if you use the rider, your beneficiaries will typically receive most of the unused death benefit.
Generally, you can receive care in a setting of your choice such as: Home Care, Assisted Living Facilities, or Nursing Homes.
Please note: For those who already have a high risk life insurance condition, burial insurance or final expense insurance might be the best route to take to at least have some coverage in place for that inevitable day.
What alternatives are available to pay for long term care?
It should be noted that social security and health insurance generally do not provide for expenses from long term care.
One option is to self fund your long term care. However, long term care is very expensive, with future estimated costs with inflation being well over $100,000 a year. You can check out John Hancock’s LTC calculator here.
Another option would be to transfer the burden to family. Just be sure that your kids are ready to for such a task.
Medicare only covers the first 100 days of care in a hospital if you meet certain health criteria. And since long term care is more focused on providing service for your personal care due to an inability to accomplish activities of daily living, medicare is not a long term care option.
Medicaid does provide support for long term care services, but it has restrictions. Medicaid requires that the individual receiving government financial support have no more than $2,000 in assets.
Who should consider a long term care rider?
Everyone should at least consider a LTC rider. Those who have a family history of cognitive disease, such as Alzheimer’s or dementia, and those with a family history of serious diseases, such as diabetes, cancer, stroke and heart disease are particularly at risk of a long term disability. As of 2007, the number of people in the U.S. requiring long term care was around 12 million. Further, there is a 68% lifetime probability of becoming disabled cognitively or disabled in two ADL’s for people 65 and older. Source.
Another category of people who should consider long term care insurance would be business owners. Adding this rider onto key man life insurance may be a smart choice, especially when using life insurance to fund a buy-sell agreement.
How does one access the money from a long-term rider?
A long-term care rider has some qualifying requirements. Once you grow old and meet those requirements (usually requirements that depend on your medical state and the kind of care you may need), then you will begin to receive tax-free payments. These requirements will vary from one life insurance company to the next, so it’s important you know the process for accessing long-term care rider benefits before you purchase this kind of rider.
Two types of LTC Benefits Plans
Our favorite long term care benefit plan is cash indemnity. Under this plan, the owner of the policy is paid direct each month and he or she can use the funds for various needs at the policyowner’s discretion. The indemnity method provides the most flexibility.
Under a reimbursement plan, bills are submitted to the carrier by the policy owner and the owner is reimbursed according to actual expenses incurred. There is less flexibility under a reimbursement plan because some expenses may not be covered.
Some companies offer a hybrid policy where money is reimbursed but the owner of the policy can receive a portion of the monthly benefit paid in cash.
What are the benefits of a long-term care rider?
The number one benefit is just being prepared. A lot of people are caught off guard by the exorbitant costs associated with long-term care. Then, their family (usually their spouse or children) are responsible for coming up with the money to pay for this long-term care. By purchasing a long-term rider, you take control and relieve your loved ones from this burden.
There are many Long Term Care insurance features and benefits. Creating the right coverage for you will depend on several factors. A few of those factors are considered below.
- How much daily or monthly benefit do you need? Choose from $50-$350 a day or $1,500-$10,000 a month.
- How long should your minimum benefit period last? The longer the minimum benefit period the more expensive the coverage. For example, a 5 year minimum benefit period will cost more than a 3 year minimum benefit period.
- How long of an elimination period are you comfortable with? Typical options are 0, 20, 30, 60, 90, 180 or 365 calendar days. You must pay out of pocket for expenses prior to the end of the elimination period.
- Do you need inflation protection as part of your long term care insurance? Your premium will increase but so will your coverage. With high inflation rates of 4.7% for for nursing homes, an inflation rider may just be what the doctor ordered.
- Does your long term care insurance comes with a waiver of premium rider? Some do, but not all.
Is there a difference between LTC rider and Chronic Illness rider?
There are a few major reasons why a LTC rider is superior to a Chronic Illness rider. Probably one of the most important reasons is that a chronic illness rider requires that the insured be permanently disabled. Alternatively, LTC rider typically goes into effect after the required waiting (elimination) period, regardless of the long term prognosis of the insured. The elimination period on long term care rider varies by state.
What are the negative aspects of purchasing a long-term care rider?
Any time you add a rider to a life insurance policy, there are expenses to consider. Riders don’t come for free. Therefore, the potential cons associated with a long term care rider would be the costs over your lifetime. This is why it is important to consider all your options when considering a LTC rider.
What happens if I never need long term care but have purchased a long term care rider?
The last thing anyone wants to do is spend money on something they never use. The same is true for life insurance riders. If you purchase a long-term care rider and never actually need long-term care, most life insurance companies have set it up so that the money you’ve paid in for the rider will ultimately be rerouted to your regular life insurance coverage, and your beneficiaries will receive the full death benefit amount.
Do I need to buy a long-term care rider?
Whenever we discuss what riders and life insurance policies to buy, it’s impossible to make blanket statements like “Yes, you should buy a long-term care rider.” These customizable options are such for a reason: they make sense for some people.
Going back to our car options example, you probably won’t buy a car with fancy leather seats if you have toddlers, but you might if you don’t. Like car decisions, life insurance decisions are very personal, and depend completely on your needs.
Ultimately, whether or not you should buy long term care insurance will depend on why you believe you need it and if you will be able to afford it.
How can I figure out what kind of life insurance coverage I need?
Long term care insurance can be added to term life insurance, whole life insurance and universal life insurance. The main question you need to ask is “Do I need a long-term care rider?” It may be difficult to come to a decision on your own, and it may be difficult to do so with a life insurance agent who has a personal agenda or sales quota to meet. That’s why you should turn to the professionals at TermLife2Go.
TermLife2Go is a third party organization that knows the life insurance industry inside and out. We work closely with dozens of life insurance companies throughout the United States. We understand the life insurance policies and riders offered by the best life insurance companies.
This puts us in a great position to give you solid advice. Not only will we help you decide whether or not you need a long-term care rider, we’ll also help you find the right life insurance company for your needs. We will learn about your life, current situation, health, and more. Then, we will pair that information with what we know about all of the policies and riders offered by the various companies in order to give you customized life insurance recommendations.
So, what are you waiting for? Give us a call today or visit our Life Insurance Quotes page and see what we can do for you!
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