What is a Long Term Care Rider?
A Long Term Care (LTC) rider is a life insurance policy element that allows you to receive a portion of the death benefit while you are still alive if you meet certain circumstances. The death benefit can then be used to pay for long-term care expenses. This type of rider is like the accelerated death benefit, which most life insurance policies have, but the qualifications for each are different. While the accelerated death benefit requires a terminal illness diagnosis to be activated, a Long Term Care rider can be triggered by the diagnosis of a chronic illness that leaves you unable to take care of yourself.
Long Term Care riders are generally only available through forms of permanent life insurance such as whole, universal or variable policies. It’s much rarer to find insurers that will offer living benefits for term life insurance policies.
You must choose your riders when you purchase the policy. If you choose to add an LTC rider to a policy, your total premium costs will increase accordingly.
How Does a Long Term Care Rider Work?
A Long Term Care rider provides financial protection if you become too ill to take care of yourself and need to pay for care. The payout from a Long Term Care rider is taken from the death benefit and can be used towards a nursing home, private nurse, or other assisted medical care associated with getting older.
To qualify for the rider, you must be unable to independently perform two of the six activities of daily living (ADL) temporarily or permanently. The following activities are considered activities of daily living:
- Getting dressed
- Walk or get from one place to another
- Use the toilet
- Maintaining bowel and bladder continence
It’s important to note that if you need care, you won’t be able to solely rely on a Long Term Care rider. While the rider covers the cost of home health care and assisted living, it won’t pay for doctors’ visits, prescriptions, and surgeries, which are normally covered by health insurance or Medicaid.
What does an LTC Rider Cover?
Typically, the combo Long Term Care and life insurance policy will pay for services that help you perform ADLs. If you cannot complete ADLs, then you may require an at-home caregiver or admission to a long-term care facility. An LTC rider typically pays for these expenses.
Long Term Care Rider Benefits Payouts
An LTC rider will usually offer two payment methods: lump sum or monthly payment. The simplest form of payout from the LTC rider is the lump-sum payment. In this case, once you receive the check from the insurance company, you can freely spend the funds however you want on living or medical costs.
Monthly payments or reimbursements can be slightly more work compared to lump-sum payouts. With this payout plan, you would be reimbursed for the amount of money you spent on long-term care during the month. Therefore, it is crucial to keep accurate records of the long-term care costs you incurred and then submit the receipts to your insurance company for payment.
You may be allowed to choose between these two options, but some insurers make the choice for you. Make sure you understand the terms of the LTC rider before purchasing one.
How Much Does a Long Term Care Rider Cost?
There is no set cost for a Long Term Care rider. How much you’ll end up paying varies with each life insurance carrier. Unlike most riders that can be added on to your policy for a flat fee, long-term care riders are priced out as an individual product. Because of this, they tend to be the costliest riders to add on to a life insurance policy and can end up adding upwards of $600 to $800 a year to your premiums.
Is a Long Term Care Rider Worth it?
As you age, the probability of incurring a disability or illness that requires care increases. About half of the people turning 65 today will need long term care, which can end up costing about $138,000 over the course of your lifetime. To accommodate these costs, some sort of financial plan is vital. Whether or not that means purchasing a long-term care rider depends on your life insurance needs.
If you need a permanent life insurance policy, perhaps because you have a child with special needs or outstanding debts that won’t be paid off anytime soon, then you’re better off purchasing a standalone long-term care policy so as to not diminish your life insurance policy’s death benefit.
If you only need a standard term life policy, then a long-term care rider might be a good addition to your life insurance policy to create comprehensive coverage and ensure you’re prepared for an illness you might get as you age. Though still costly when compared to other life insurance riders, it is cheaper than purchasing a standalone long-term care insurance policy.