Long Term Care Rider

What is a long term care rider?

A long-term care rider is a living benefit on a life insurance policy that lets you access a portion of the policy’s death benefit each month to pay for long-term care expenses. To exercise the benefits offered by this endorsement, a medical professional must certify that the policyholder cannot perform at least two activities of daily living or that he needs significant supervision to protect his health and its safety due to cognitive impairment (such as Alzheimer’s disease or dementia).

Key points to remember

  • Long-term care endorsements on life insurance policies can be more affordable than stand-alone long-term care policies.
  • If you use the long term care benefits of your rider, the death benefit of your policy will decrease proportionally.
  • If you don’t use your long-term care benefits, your heirs will receive the full death benefit from your life insurance policy, less what you owe on policy loans.

Understanding long term care insurance and its riders

To understand long-term care endorsements, we must first take a look at long-term care (LTC) insurance. Dependency insurance is expensive. The average annual premium charged by major long-term care insurance companies in January 2019 was $2,050 for a single man, $2,700 for a single woman and $3,050 for a couple, according to calculations of the American Association of Long-Term Care Insurance. These premiums are for healthy 55-year-olds and the policies offer a lifetime benefit of $164,000 at the start of the policy. This benefit increases to $386,500 at age 85. If you apply when you’re older, your health isn’t as good, or you want more benefits, the premiums go up.

Because of the cost, and perhaps because people don’t know the coverage exists or why they might need it, most don’t buy LTC insurance. Only 350,000 Americans had some type of LTC insurance in 2018, and only 16% of those had standalone policies, reports the American Association of Long-Term Care Insurance. The remaining 84% received a long-term care benefit attached to a life insurance policy or an annuity.

Medicare does not cover long-term care because assistance with activities of daily living is not considered medical care.Medicaid covers long-term care needs that are severe enough to require nursing home care. But you must meet your state’s requirements for Medicaid eligibility, which include low income and limited assets.

The high cost of care

The annual cost of long-term care depends on where you live and the type of care you want. Nationally, the median is $19,500 per year for adult day care, $48,612 for a one-bedroom private unit in community or assisted living, $52,624 for a home caregiver and $102,200 for a private single room in a retirement home. These figures come from a 2019 study by long-term care insurance provider Genworth. The median monthly cost is $1,625 for adult day care, $4,051 for assisted living, $4,385 for home help, and $8,517 for a private single room. in a retirement house.

Life insurance laws are not the same in all states, so long term care endorsements vary by state and insurance company.

To cover these potential costs, you can add a long-term care rider to a life insurance policy. The big advantage of choosing this option over a stand-alone policy is that if you don’t use the care benefit, the policy pays out a death benefit. Standalone policies may seem useless if you never file a claim.

A long term care rider is not available with all life insurance policies or from all insurance companies. It may be available with whole life, universal life, indexed universal life or variable universal life (VUL). A few companies that offer it are AXA Equitable, Guardian, John Hancock, Lincoln Financial Group, MONY Life Insurance Company of America, Nationwide, and State Farm. This list is not exhaustive, but it helps to illustrate that long term care endorsements are widely available.

How Long Term Care Endorsements Work

Long-term care insurance, whether a stand-alone policy or a rider, covers the cost of care when a person needs help with two or more activities of daily living (ADLs). ) or suffers from a severe cognitive impairment requiring constant supervision to prevent him from harming himself. or others. Activities of daily living are bathing, dressing, grooming, continence, transferring and feeding. Someone might need help with these activities after an accident, stroke, major surgery, advancement of a chronic illness, or other serious condition.

Similar to the requirements of a stand-alone long-term care policy, a long-term care rider may have a 90-day waiting period before benefits are paid. The payments you receive through the Long Term Care Rider are subtracted from your policy’s death benefit and your beneficiaries will receive a reduced payment upon your death. If your life insurance policy has a cash value, activating the long term care rider may reduce the cash value of the policy.

Outstanding loans against the cash value of your policy may reduce your long-term care benefits.

The Long Term Care Rider will receive a maximum monthly benefit. You may, for example, be able to receive 1%, 2%, 3% or 4% of your policy’s death benefit per month. The rider will also have a lifetime maximum benefit. One policy we reviewed, for example, offers coverage from $100,000 up to the policy’s full death benefit.Some policies allow you to use the benefit to pay for care of family members, while others require you to receive it from licensed healthcare providers. Even if family care is permitted, you may need to submit a care plan from a licensed healthcare professional and have it recertified annually for the endorsement to cover your care.

Other benefits

Here are some other benefits of long term care endorsements. Some riders allow you to use your long-term care benefits outside of the United States. Another feature that can save you some headaches is an endorsement that doesn’t require you to submit bills or receipts for your care. Some policies offer a guaranteed minimum death benefit even if you exhaust your policy’s long-term care benefits.Long-term care benefits are generally not taxable.

The cost of a long term care rider can increase over time. Before buying a policy, make sure you know if the premiums are guaranteed to be the same each year or if they will increase over time, and if so, by how much.

Payment options for long-term care are changing. Insurers are offering more products, more affordable prices and more flexible benefits. A long-term care rider on a whole or universal life insurance policy is one way you can choose to protect your retirement funds and family members from the costs of long-term care and the burden of family care. unpaid.

Earnest L. Veasey