Should I Buy Life Insurance With a Long-Term Care Rider?

Long-term care (LTC) is an insurance policy add-on that can help pay for certain long-term care costs that health insurance, Medicare and Medicaid don't cover. That could include anything from prescriptions to assistance with cooking and cleaning at home.

---

---

Many life insurance companies offer combination life insurance policies that attach LTC benefits to the plan. These add-on bundles are known as long-term care riders. An LTC rider can provide useful protection if you need some medical services you otherwise could not afford.

What is a long-term care rider?

A long-term care (LTC) rider is a life insurance policy feature that allows you to receive part of the death benefit while you're alive. ⁠(That's the money that would be paid to your beneficiary after you die.) The money can then be used to pay for long-term care expenses.

This rider is similar to the accelerated death benefit, which most life insurance policies have, but the qualifications are a little different. The accelerated death benefit requires a terminal illness diagnosis. But an LTC rider can be used when a diagnosed chronic illness leaves you unable to take care of yourself.

LTC riders are generally only available with certain permanent life insurance policies, such as whole, universal or variable. Companies that offer this benefit for term life policies are rare.

If you want an LTC rider, you'll need to include it when you buy your life insurance policy. If you do choose to add the rider, your total premium costs will increase accordingly.

How does an LTC rider work?

The long-term care rider add-on allows policyholders to use their permanent life insurance death benefit while alive. To access the benefit, a licensed health care professional would need to certify that you have a chronic illness that restricts you from doing at least two of the six activities of daily living (ADL), such as eating, bathing or dressing.

Or a doctor can diagnose you with a chronic illness or cognitive impairment. Examples of qualifying illnesses include:

Many other conditions may be classified as chronic illnesses. Your insurance provider has the final say.

To qualify, you typically must have a licensed health care professional certify that you have a chronic illness that restricts you from doing at least two of the six activities of daily living (ADL):

Before the company will pay any benefits, you must show the impairment for 30, 60 or 90 days, which is known as the elimination period. Once the impairment has been certified, insurance will begin to reimburse long-term care costs.

What does an LTC rider pay for?

Typically, a combo LTC and life insurance policy will pay for services that help you with ADLs. For example, an LTC rider may pay for an at-home caregiver or admission to a long-term care facility.

Long-term care rider benefits payouts

An LTC rider usually offers two payment methods: lump sum or monthly. The simplest form is the lump-sum payment. In this case, once you receive the check from the insurance company, you can freely spend the funds on living or medical costs.

Monthly payments or reimbursements can be slightly more work. With this payout plan, you would be reimbursed for what you spent on long-term care during the prior month. With this arrangement, keeping accurate records of your long-term care costs and submitting the receipts to your insurance company are crucial.

You may be given a choice, but some companies decide for you. So make sure you know your options before adding it to your policy.

---

---

Should I purchase a combo life insurance policy?

There are several factors to consider when deciding whether a combo life insurance policy (or a policy with an LTC rider) is right for you. Keep in mind, using the LTC rider will reduce the amount of money your loved ones will receive from the policy after you die.

As a result, a combo life insurance policy should not be your sole life insurance policy if you need income protection, such as paying for a mortgage or college tuition. Combo policies are designed to be paired with permanent life insurance to cover long-term care needs. If you need simple death benefit coverage, a term life insurance policy would be better and much cheaper.

However, there are some advantages to buying life insurance with an LTC rider. One main advantage is that premiums for a combo policy are locked in. With stand-alone long-term care insurance, the company may increase premiums yearly.

In addition, you are guaranteed a return on your premium. If you need long-term care, the premiums you've paid into the policy can be used for care expenses. But even if you never need long-term care, your policy still works as normal life insurance and pays a death benefit to your beneficiaries when you die.