Should you need long-term care, life insurance with a long-term care rider can help pay for it. Find out how an LTC rider works to decide if it's right for you.
About 70% of Americans turning 65 today will experience a long-term health care need, according to the U.S. Department of Health & Human Services' Administration on Aging. That care is expensive, too. Americans can expect to pay more than six figures per year for private room care. While it may not be top of mind, life insurance can help provide direct benefits that offset these costs, or it can replenish assets that were exhausted by paying for the care of a loved one. If you're interested in using life insurance as a source of funding for long-term care or final expenses, read on to learn which types of life insurance policies can help.
Let's start by defining what we mean by long-term care. Long-term care refers to the assistance people receive with activities of daily living (ADLs) due to illness, injury or cognitive impairment. These include bathing, dressing, eating, transferring and toileting. Long-term care can be provided at home, in an assisted living facility, or in a nursing home. Long-term care insurance is a type of insurance policy that provides a stated benefit to cover the expenses associated with long-term care. People who own these policies can claim the benefit once they have a proven inability to perform a certain number of ADLs. A long-term care rider on a life insurance policy is an additional feature that helps cover long-term care expenses if you become chronically ill or unable to perform ADLs.
Long-term care riders are usually attached to permanent life insurance policies, such as whole life or universal life. Generally, when long-term care riders pay for long-term care expenses, your policy's death benefit is reduced dollar for dollar. To some degree, that can also reduce your cash value. Upon your death, the remaining portion of the death benefit — that was not used to pay long-term care benefits — will be paid to your beneficiaries on a tax-favored basis. Here's a breakdown. Eligibility: To qualify for the benefit, you must meet the criteria specified in the rider. That may include being unable to perform a certain number of ADLs, or being diagnosed with a qualifying chronic illness, as defined by the life insurance company. Benefit amount: The rider specifies a percentage or a specific dollar amount of your policy's death benefit that can be used for long-term care expenses. For example, if the insurance company pays a death benefit of $500,000 and the rider provides a 50% accelerated death benefit for long-term care, you may be able to access up to $250,000 for long-term care expenses. Benefit payout options: The rider may offer different benefit payout options, such as a lump sum or periodic payments, to cover the long-term care expenses. You can typically choose the option that best suits your needs. Impact on death benefit: The long-term care benefit payout is typically subtracted from the policy's death benefit. For example, if you access $250,000 for long-term care expenses from a $500,000 policy, the remaining death benefit for your family would be $250,000. Premiums: The rider may require additional premiums to be paid in addition to the base premiums of the underlying life insurance policy. These premiums can vary depending on your age, health and other factors. Before you decide to add a long-term care rider, be sure to consider any additional premiums. Limitations and exclusions: Limitations, exclusions, waiting periods and other conditions may impact the availability and use of your long-term care rider. Be sure you've carefully reviewed and understand these terms to ensure they align with your expectations and needs. The specifics of long-term care riders vary depending on the insurance provider and the policy. Consider consulting with a qualified insurance professional, who can help you understand how the rider works and how it may fit into your overall financial and estate-planning strategy.
In summary, life insurance with a long-term care rider can be a valuable option if you're looking for comprehensive coverage for both life insurance and long-term care needs.
Planning and being proactive about long-term care needs can help you take thoughtful steps in securing your future and protecting your loved ones. As with any insurance decision, carefully review your individual needs and financial situation, and consult with a qualified insurance professional to determine if this coverage is suitable for you.