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What Is a Long-Term Care Rider and Do You Need One?

When purchasing life insurance, you may need to choose whether or not to add a long-term care rider to your plan. Though often more expensive, a long-term care (LTC) rider ensures that you can access a private caretaker or a room in a nursing home later in life when you might not be able to perform basic daily tasks independently. Read on to learn how to choose whether a long-term care rider may be right for your situation.

What Is a Long-Term Care Rider?

A long-term care rider is a life insurance plan supplementing coverage to pay for skilled assistance for those still living but cannot completely do so without help. As we age, we begin to struggle with the normal activities of daily living, such as eating or using the bathroom, that might require us to seek outside care.

Long-term care riders are generally more expensive and commonly available in tandem with permanent life insurance plans. If you can’t afford an LTC rider, there exist parallel routes to aging-related coverage. Standalone long-term care insurance and immediate annuities that allow withdrawals from your insurance account are just a few additional options that might better suit your budget. 

How Does Life Insurance With a Long-term Care Rider Work? 

To qualify for a long-term care rider, you must be under the age of 85 and no longer be able to perform at least two of the following six activities independently:

  • Eating
  • Bathing
  • Dressing yourself
  • Walking
  • Using the toilet
  • Controlling your bowels and bladder

A long-term care rider would supply you with consistent monthly income over a designated period to help provide a caretaker or proper residence in a nursing home. To get a long-term care rider, you pay a large, one-time premium upfront with your normal life insurance plan. These are just a few details you might consider before doing so:

What Does an LTC Rider Pay For? 

A long-term care rider helps to pay for long-term care expenses not touched upon by basic life insurance plans, such as a live-in caretaker or a room in a nursing home. A long-term care rider would not cover relative basic care expenses otherwise covered by health insurance. These exclusions include regular doctor’s visits, time in the hospital, and prescription medication.

About 70% of people turning 65 will require some kind of long-term care to carry them through the final years of their life. With or without a long-term care rider, it is essential to have a financial plan in place so the hefty costs of long-term, elderly care do not burden your family.

How Do I Receive Payouts From a Long-term Care Rider? 

Upon qualifying for your long-term care benefit and riding out the waiting period, you will receive payments either in one lump sum or as a percentage of your policy’s death benefit. Your death benefit is the reimbursement from your life insurance plan intended for your family once you should pass away.  

You choose the amount your LTC rider will pay out monthly to cover your long-term care, typically between 1-4% of your death benefit. Long-term care expenses are regularly capped at 80% of your death benefit. Considering the considerable expense of long-term care, insurers cap the amount you can spend to leave some money for your family as a death benefit.

Reimbursement vs. Indemnity Payouts 

The lump sum payouts mentioned above are known as indemnity payouts. Indemnity long-term care riders are quite a bit more expensive to purchase solely because the eventual payout is higher, and you can use the money however you please. This is true no matter what your health expenses end up being.

On the other hand, reimbursement for long-term care riders are much more cost-effective and more commonly utilized by consumers. Reimbursement payouts are specifically designed to cover the costs of long-term care. You would submit receipts, and your insurance company would reimburse you for any expenses related to long-term care.

LTC Rider Waiting Periods and Requirements 

When purchasing an LTC rider, you must decide upon a waiting period covering the gap between when you first make a claim and when you will begin receiving benefits. The longer the waiting period you choose, the lower your premium will be, and vice versa.  

A new policy must begin covering pre-existing conditions six months from the effective date of coverage. You would also have to pass medical underwriting, an investigation of your health status by your insurance company. Depending on the results, there is a chance that long-term care coverage could be denied.

Understanding Long-Term Care Insurance and Riders 

While long-term care insurance and LTC riders are essentially designed to provide the same style of extended coverage later in a client’s lifetime, long-term care insurance exists outside of a life insurance rider. You would pay a monthly premium instead of a lump sum, and LTC insurance would offer its own independent coverage without detracting from your life insurance policy’s death benefit.  

Long-term care insurance can be costly, as your premium rates should be expected to rise over time. An insurance rider, on the contrary, is an optional enhancement to a pre-existing annuity contract. These are typically paid in one big lump sum and therefore are immune to inflation as you age. What you pay upfront is what you pay, with the same guaranteed reimbursement later on.

Does Life Insurance Cover the Costs of a Nursing Home? 

Most life insurance policies do not cover the cost of a nursing home, as your payout is specifically intended for the beneficiary named on your policy. While a long-term care rider would allow you to access funds from your life insurance plan to cover your nursing home costs, this may not be ideal if you are planning to leave any significant payout behind for your family.

The High Cost of Care 

Nursing homes are not cheap, and costs are only on the rise. Though various factors affect nursing home costs, the average annual rate for a semi-private room in an American nursing home in 2022 is $97,747. The national average for a private room is $111,657.

How Much Does a Long-term Care Rider Cost?

The price of a long-term care rider is dependent on the insurer and one’s personal circumstances. LTC riders tend to be the most expensive supplement to any life insurance plan regardless, and you can expect to see anywhere from $600-800 tacked onto your annual premium. 

Alternatively, a standalone long-term care insurance policy costs $950 a year on average for a 55-year-old male. This same policy would be $1500 for a 55-year-old female.

Is Life Insurance With a Long-term Care Policy Worth It? 

While some clear benefits come from taking out a long-term care rider, it may not be worth it for many people, especially those of limited means. Nevertheless, included here are some of the positives:

  • You can access your long-term care fund immediately
  • You can pass on the value of your rider to your children
  • Your long-term care costs may qualify for a tax deduction
  • Your insurance company can’t raise your premium

Remember that an LTC rider could pose tax complications and affect your Medicare eligibility.

You’ll also need liquid assets on hand to pay the one-time LTC premium upfront. Even then, your LTC rider might not be enough to cover the entire duration of your long-term care expenses.

How To Get Life Insurance With a Long-term Care Rider 

You can start the process of getting life insurance with a long-term care rider by comparing companies online and eventually filing for a life insurance quote. You’ll be required to answer some questions about your health and should be prepared to choose your premium amount and refine other policy details. Suppose you already have a pre-existing permanent life insurance plan, such as whole life insurance or universal life insurance. In that case, you can also talk to your insurance company about adding a long-term care rider to your existing policy.

Plan for your family’s future. Get a life insurance quote today.

Get a quote

Plan for your family’s future. Get a life insurance quote today.

Get a quote