Long-term care (LTC) insurance is an insurance product that can help pay for certain long-term care costs that aren't covered by health insurance, Medicare or Medicaid. That could include anything from prescriptions to assistance cooking and cleaning at home..

Many life insurance providers today offer combination life insurance policies, with LTC benefits attached to the plan. These are known as long-term care riders. An LTC rider can provide useful protection if you end up needing certain medical services that 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 a portion of the death benefit ⁠— the money that would be paid to your beneficiary after you pass ⁠— while you're still alive. The money can then be used to pay for long-term care expenses.

This type of rider is similar to the accelerated death benefit, which most life insurance policies have, but the qualifications differ slightly. While the accelerated death benefit requires a terminal illness diagnosis, an LTC rider can be triggered by the diagnosis of a chronic illness that leaves you unable to take care of yourself.

LTC riders are generally only available through certain forms of permanent life insurance, such as whole, universal or variable policies. Insurers that offer this benefit for term life policies are much rarer.

If you want to include an LTC rider, you'll need to choose it when you purchase your life insurance policy. If you do choose to add an LTC 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 they are still living. To access the death benefit, a licensed healthcare professional would need to certify that you have a chronic illness that restricts you from performing at least two of the six activities of daily living (ADL), such as eating, bathing or dressing.

Alternatively, a doctor may diagnose you with a chronic illness or cognitive impairment. Examples of qualifying illnesses include:

Many other diseases may be classified as a chronic illness, but your insurance provider will have the final say on whether your situation qualifies.

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

Before the insurer 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, the insurance provider will begin to reimburse long-term care costs.

What does an LTC rider pay for?

Typically, the combo LTC and life insurance policy will pay for services that help you perform ADLs. If you cannot complete ADLs, 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 will usually offer two payment methods: lump sum or monthly payment. 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 the amount of money you spent on long-term care during the prior month. With this arrangement, it is crucial to keep accurate records of the long-term care costs you incurred and submit the receipts to your insurance company.

You may be allowed to choose between these two options, but some insurers make the choice for you, so make sure you know what your options are 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. Most importantly, if you do use the LTC rider, you will directly reduce the amount of money your loved ones will receive from the policy after you die. As a result, combo life insurance policy should not be your sole life insurance policy if you need income protection, like paying for a mortgage or college tuition. Combo policies are specifically designed to be paired with permanent life insurance to cover long-term care needs. If you need simple death benefit coverage, then we would suggest a term life insurance policy, which is a significantly cheaper option.

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 a stand-alone long-term care insurance plan, the provider 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 returned to you and 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 pass away.