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

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.

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Nupur Gambhir

Nupur Gambhir

Senior Editor & Licensed Life Insurance Expert

Nupur Gambhir is a licensed life, health, and disability insurance expert and a former senior editor at Policygenius. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service Cake.

&Rebecca Shoenthal

Rebecca Shoenthal

Editor & Licensed Life Insurance Expert

Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

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Maria Filindras

Maria Filindras

Financial Advisor

Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

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A long-term care rider (LTC) can be added to your life insurance 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.

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What is a long-term care life insurance rider?

A life insurance rider is a supplemental component to life insurance policies that creates more robust coverage. 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.

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

With most insurers, the amount available for long-term care expenses is capped between 70-80% 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. 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%, which, with a 3% monthly benefit, would be be $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.

  1. Reimbursement long-term care riders These are the most popular, cost-effective choice that reimburses you for the costs of care

  2. Indemnity long-term care riders These are more expensive and are paid out in a lump sum when the rider is activated

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, start at $2,080 in 2021. The annual premium for single women and men started at $1,500 and $950, 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 percent 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.

Does life insurance cover the costs of a nursing home?

While most life insurance proceeds pay out after your death and don't cover nursing homes, some policies and riders allow you to access funds while you’re alive. But these types of policies and riders aren’t the best options when it comes to securing assisted medical care because they are difficult to qualify for and withdraw from your policy’s pay out to your family. Instead, you should purchase a standalone long-term care policy.

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, which is another reason why standalone long-term care policies are usually a better alternative.

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 investment component associated with some permanent life insurance policies. The cash value can be used while you’re alive, including taking out a loan against it.

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 you probably don’t want to. 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. Like most debts, the amount you still owe doesn’t just disappear when you die.

If you die and haven’t paid back the loan taken against your cash value, it is depleted from the death benefit paid out to your beneficiaries. Depending on how big of a loan you took and how much interest you accrued — keeping in mind that nursing homes can end up being 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 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.

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. 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.

Does insurance help pay for assisted living?

If you have a permanent life insurance policy with a cash value, the accumulated cash can 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 $105,850 annually.

References

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Policygenius uses external sources, including government data, industry studies, and reputable news organizations to supplement proprietary marketplace data and internal expertise. Learn more about how we use and vet external sources as part of our

editorial standards.
  1. American Association for Long-Term Care Insurance

    . "

    Long-Term Care Insurance Facts - Data - Statistics - 2021 Reports

    ." Accessed January 25, 2022.

  2. Genworth

    . "

    Cost of Care Survey

    ." Accessed January 25, 2022.

Authors

Senior Editor & Licensed Life Insurance Expert

Nupur Gambhir

Senior Editor & Licensed Life Insurance Expert

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Nupur Gambhir is a licensed life, health, and disability insurance expert and a former senior editor at Policygenius. Her insurance expertise has been featured in Bloomberg News, Forbes Advisor, CNET, Fortune, Slate, Real Simple, Lifehacker, The Financial Gym, and the end-of-life planning service Cake.

Editor & Licensed Life Insurance Expert

Rebecca Shoenthal

Editor & Licensed Life Insurance Expert

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Rebecca Shoenthal is a licensed life, disability, and health insurance expert and a former editor at Policygenius. Her insights about life insurance and finance have appeared in The Wall Street Journal, Fox Business, The Balance, HerMoney, SBLI, and John Hancock.

Expert reviewer

Financial Advisor

Maria Filindras

Financial Advisor

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Maria Filindras is a financial advisor, a licensed Life & Health insurance agent in California, and a member of the Financial Review Council at Policygenius.

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