When you need long-term care assistance, the costs can be steep—averaging between $4,500 and $10,000 per month for services like home health aides or skilled nursing facilities. To manage these expenses without depleting personal savings, many turn to a long-term care (LTC) rider on a life insurance policy.
A long-term care rider is an addition to a life insurance policy that allocates funds to cover medically necessary long-term care costs. This could include services from home health aides, nursing homes, or skilled nursing facilities. The funds from an LTC rider typically reduce the policy’s death benefit, effectively advancing part of the death benefit to cover these costs.
Benefits of LTC Riders
- Affordability: Adding an LTC rider to a life insurance policy is generally cheaper than purchasing a standalone long-term care insurance policy.
- Peace of Mind: It assures you that funds are available for long-term care, lessening the financial burden on you and your family.
- Flexibility: Provides an alternative to meet long-term care costs without entirely depending on personal savings or family support.
Cost of LTC Riders
The cost of an LTC rider can vary but typically increases your annual insurance premium by several hundred dollars. This is usually much more affordable compared to standalone long-term care insurance plans, which can cost thousands annually.
How It Works
- Eligibility: You must be certified by a physician as unable to perform at least two out of six activities of daily living (ADLs) such as eating, bathing, or dressing.
- Waiting Period: There is often a waiting period (like a deductible in days), where you must cover care costs out-of-pocket before the rider benefits begin.
- Death Benefit Reduction: The funds used for LTC are deducted from the total death benefit of the insurance policy. It’s important to understand the ratio of benefit reduction and the maximum allowable monthly or annual benefit withdrawal.
Payout Structures - Indemnity: This structure provides a fixed monthly benefit once you qualify, giving you the freedom to use the funds as needed without submitting expense reports.
- Reimbursement: This pays out only against actual billed services. You must submit proof of care expenses to receive payments, and there may be restrictions on eligible care providers.
Is an LTC Rider Right for You?
An LTC rider can be a strategic choice if you’re concerned about future long-term care needs, especially if you have a family history of chronic illnesses that might require such care. It’s a cost-effective way to ensure that you can afford necessary care without significant personal financial impact.
Alternatives
If the costs of adding an LTC rider are too high or if you’re ineligible, you might consider a life settlement. This involves selling your life insurance policy for a lump sum that is typically higher than the surrender value but less than the death benefit. This option provides immediate cash that can be used for any purpose, including covering long-term care expenses.
Long-term care riders offer a viable solution to manage the significant expenses associated with long-term health care needs, blending insurance benefits with practical financial planning to ensure care with minimal financial disruption.
