What is a long-term care life insurance rider?
A long-term care (LTC) rider is a policy add-on that can be added to your life insurance policy to ensure that you’re financially protected while you’re still alive if you become too ill to take care of yourself and need to pay for care.
A life insurance rider is a supplemental component to life insurance policies that creates more robust coverage. The payout from a life insurance with long-term care rider is taken from your policy’s death benefit. It can be used toward a nursing home, private nurse, or other assisted medical care associated with getting older.
To qualify for life insurance with LTC rider, you must be unable to independently perform two of the six activities of daily living (ADLs) temporarily or permanently. The following activities are considered activities of daily living:
Eating
Bathing
Getting dressed
Walking or getting from one place to another
Using the toilet
Maintaining bowel and bladder continence
With most insurers, the amount available for long-term care expenses is capped between 70% and 80% of the death benefit, paid out monthly. At the time of the rider application, the policyholder selects the percentage (from 1% to 3%) they’d like to receive each month if the rider is activated.
For example, if you have a $250,000 life insurance policy, the most you’d be able to take out for long-term care if you have the rider is $200,000 if your insurance company allows 80%. With a 3% monthly benefit, this would provide $7,500 per month until you’ve collected the capped amount.
It’s important to note that if you need comprehensive 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.
Reimbursement vs. indemnity payouts
There are two types of long-term care riders: reimbursement plans and indemnity plans.
How much does a long-term care rider cost?
There’s no set cost for the LTC rider. How much you’ll end up paying varies with each life insurance company. 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 some of the most expensive riders and can end up adding upward of $600 to $800 a year to your life insurance premiums.
According to a cost survey from AALTCI, premiums for a couple, both age 55, started at $2,080 in 2023. The annual premium for single women and men started at $1,500 and $900, respectively. [1]
Is a long-term care rider worth it?
As you age, the probability of incurring a disability or illness that requires care increases. About 70% of people turning 65 today will need long-term care, which can cost almost $9,000 a month for a private room at a nursing home facility. [2]
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 and overall financial picture.
For most people, the long-term care rider’s high cost isn’t the most effective to plan for the future. A Policygenius agent or financial advisor can help you determine if a long-term care rider is worthwhile based on your individual circumstance. See below for some life insurance-related alternatives to consider.
Does life insurance cover the costs of a nursing home?
Most life insurance proceeds pay out after your death and don’t cover nursing homes or other types of long-term care, such as assisted-living facilities and in-home care. But some policies and riders allow you to access funds while you’re alive.
These types of policies and riders aren’t the best options for older people who need help, however, because qualifying for these payments can be difficult.
Using a long-term care rider to cover nursing home costs
If you meet the rider’s requirements listed above, the benefit amount paid out to cover the cost of your assisted medical care is taken from your policy’s death benefit. This leaves your beneficiaries with less financial support when you die — another reason why standalone long-term care policies are usually a better option.
Using the cash value of whole life insurance to cover nursing home costs
If you have a whole life policy, your policy may have accumulated some cash value, which is the savings component associated with some permanent life insurance policies. The cash value often grows at a fixed rate set by the insurer and can be used while you’re alive.
When you take out a loan against the cash value of your policy, you’re not withdrawing from the policy but rather borrowing from it, which means you’re technically borrowing from your insurer and accruing interest on the loan.
You could use this to pay for nursing home expenses, but think hard before making this choice.
Assuming you’re using the cash value because nursing home costs would otherwise be unaffordable, it’s unlikely that you would be able to pay the loan back.
If you die and haven’t paid back the loan taken against your cash value, it’s subtracted from your death benefit. Depending on how big a loan you took and how much interest you accrued — keeping in mind that nursing homes can end up costing tens of thousands of dollars — your beneficiaries could receive a diminished benefit or none at all.
What are the alternatives to a long-term care rider?
Standalone long-term care insurance
If you want comprehensive long-term care coverage but don’t want to detract from the face value of your life insurance policy, you can purchase a standalone long-term care insurance policy.
Similarly to a long-term care rider, a standalone policy covers the costs of care for people who need help with ADLs, such as people with Alzheimer’s or people who are living in nursing homes or care facilities.
These policies are expensive, and can become unaffordable as you age. To get affordable rates, it’s best to purchase a long-term insurance plan as early as possible, as you would want to do with life insurance.
In addition, unlike the premiums for a life insurance policy, long-term care policy premiums are not fixed and can increase over time.
Chronic illness accelerated death benefit rider
Depending on which riders your insurance company offers, you can add a chronic illness accelerated death benefit rider to your policy in lieu of a long-term care rider.
Like a long-term care rider, a chronic illness rider pays out when the insured cannot perform two of the six activities of daily living. However, while a long-term care rider can pay out if an individual has a temporary disability, the chronic illness rider only pays out if a medical professional certifies that the disability is permanent.
Frequently asked questions
What is a long-term care rider?
A long-term care rider is an optional add-on to your life insurance policy, known as a “living benefit” because it can be accessed before you die. LTC riders provide coverage for long-term care needs, such as in-home nursing.
Can I use life insurance to pay for long-term care?
Traditional life insurance policies pay out to your beneficiaries after you die and cannot be used to pay for expenses while you’re alive. You can access life insurance benefits in certain situations, including terminal illnesses, qualifying medical conditions, or if your policy has a cash value component. To pay for long-term care with life insurance, you must add on a critical illness insurance rider.
What is the difference between a chronic illness rider and a long-term care rider?
Both chronic illness and long-term care riders are types of critical illness insurance riders that pay out accelerated benefits while you’re alive to cover treatment for certain illnesses or conditions. Both types of riders activate when you’re no longer able to perform at least two of the six activities of daily living (ADLs). You must be permanently disabled (certified by a medical professional) to activate a chronic illness rider, whereas a long-term care insurance rider pays explicitly for long-term care expenses, such as a nursing home.
Does insurance help pay for assisted living?
If you have a permanent life insurance policy with a cash value, you can use the accumulated cash to help cover the costs of assisted living. However, we recommend using Medicaid or a separate long-term care insurance policy to cover the cost of a nursing home.
How much do nursing homes cost?
Nursing homes are very expensive and cost $108,405 annually for a private room.
