Q

Should I add a long-term care rider to my life insurance policy?

A

If you can afford the high cost, a long-term care rider is a good option to help cover the costs of nursing homes, a private caretaker, or other medical costs associated with aging.

When you’re buying life insurance, you may consider purchasing some optional coverage add-ons to set up a robust safety net for you and your family. This supplemental coverage, called a life insurance rider, offers some financial security in the event of an unexpected illness or injury.

A long-term care rider (LTC) can be added to your policy to ensure that you’re financially protected while you’re still alive if you are no longer able to perform at least two of the six Activities for Daily Living (ADL). The long-term care rider pays explicitly for expenses associated with your long-term condition, including nursing home fees and assisted living costs.

LTC riders are unaffordable for most people and there are often better options to help cover qualifying expenses. Read on to learn if adding a long-term care rider is a good choice for you.

Key Takeaways

  • A long-term care rider pays out a portion of your life insurance policy’s death benefit while you’re still alive if you become too ill to take care of yourself and need to pay for assistance or care

  • To qualify for a long-term care rider, you must be unable to perform two of the six Activities of Daily Living, or ADL

  • Because a long-term care rider withdraws the payout from the death benefit, individuals with a high need for life insurance should consider a standalone long-term care insurance plan

What is a life insurance rider?

A life insurance rider is a supplemental component to life insurance policies that creates more robust coverage. A rider is only valid while your policy is in force and usually comes at an extra cost, though there are some riders that insurers may include in your policy for free, such as a term conversion rider.

Some common riders include:

  • Accelerated death benefit rider — Pays out a portion of the death benefit while you are still alive if you are diagnosed with a terminal illness

  • Accidental death & dismemberment — Offers an additional death benefit to your beneficiaries if you die in an accident and pays out while you’re still alive if you lose a limb

  • Critical illness benefit rider — Provides early access to benefit for the treatment of certain illnesses denoted by the rider

  • Child rider — Provides a benefit to provide for necessary expenses in the event of a child’s death

  • Term conversion — Allows for the conversion of a term policy into a whole policy at the end of its term

  • Waiver of premium rider Waives the cost of premiums if you become disabled and cannot work

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 your policy’s death benefit and can be used towards a nursing home, private nurse, or other assisted medical care associated with getting older.

With most insurers, the amount available for long-term care expenses is capped between 70-80% of the death benefit. So 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%.

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:

  • Eating

  • Bathing

  • Getting dressed

  • Walking or getting from one place to another

  • Using the toilet

  • Maintaining bowel and bladder continence

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.

Indemnity vs reimbursement

There are two types of long-term care riders: indemnity plans and reimbursement plans.

Most life insurance companies offer reimbursement long-term care riders, which means that they reimburse you for the costs of care. However, some may dish out a lump sum when the rider is activated, which is an indemnity long-term care rider.

A reimbursement plan is usually the most cost-effective option, whereas an indemnity plan tends to be costlier because it can potentially pay out a higher amount regardless of how much the medical expenses cost.

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 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 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.

According to a cost survey from AALTCI premiums for a couple, both age 55, averaged $3,050 at the start of 2020. The average annual premium for single women and men was $2,675 and $1,700, respectively.

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 and overall financial picture.

If you determine you need a permanent life insurance policy, perhaps because you have a child with disabilities 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.

But if you only need a standard term life insurance 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.

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.

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 support, such as people with Alzheimer’s or who are living in nursing homes or care facilities.

Unfortunately, purchasing a long-term care policy on its own tends to be expensive, and as you age, it can become unaffordable. 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.

Chronic illness accelerated death benefit rider

Depending on what 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. Similarly to the long-term care rider, a chronic illness rider pays out when the insured cannot perform two of the six activities of daily living. 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.

Life insurance with long-term care rider FAQs

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. A LTC rider provides 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 dependents 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 are no longer able to perform at least two of the six Activities for Daily Living (ADL). 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.