Long-Term Care insurance is a product that will help pay for some of the costs associated with long-term care that are not covered by health insurance, Medicare, or Medicaid.
Many life insurance carriers offer combination life insurance policies that attach Long-Term Care benefits to the insurance plan. These are known as long-term care riders and can provide useful protection if you end up needing certain medical services that you otherwise would not be able to afford.
Long-Term Care Rider
A long-term care rider is a life insurance policy provision that allows you to receive a portion of the death benefit while you are still alive. The death benefit can be used to pay for long-term care expenses. This type or rider is similar to an accelerated death benefit rider, which most life insurance policies have, but the qualifications for them can be different. While the accelerated death benefit rider requires a terminal illness trigger it, and LTC rider can be triggered by the diagnosis of a chronic illness that leaves you unable to take care of yourself.
LTC riders are typically only available through permanent life insurance policies such as Whole Life, Universal, or Indexed Universal life. But there are options on Term insurance products.
You must choose your riders at the time of application for the insurance policy. If you choose an LTC rider to be added to your policy, your total premiums will be increased accordingly.
How does a LTC rider work?
The Long-term care rider add-ons allow policyholders to use their permanent life insurance death benefit while they are still living. To access the death benefit, a doctor would need to diagnose you with a chronic illness first. Examples of chronic illness can include:
- Alzheimer’s disease
- Crohn’s Disease
- Mood disorders
- Cystic Fibrosis
- Multiple Sclerosis (MS).
Many other diseases may be classified as a chronic illness, but your insurance provider will have the final say on whether your situation meets its criteria for triggering the benefits of an LTC rider.
To be diagnosed with a qualifying chronic illness, you typically must have a licensed health care professional certify that you have a chronic illness that restricts you from performing at least two of the six activities of daily living (ADL). ADLS include:
- Toilet use (personal Hygiene functions)
- Transferring (getting in and out of bed without assistance) Maintaining continence.
Before the insurer will pay any benefits, you must show the impairment for 90 days, which is known as the elimination period. Once the impairment has been certified, the insurance provider will begin to reimburse long-term care costs.
What does LTC rider Pay for?
Typically, the combo LTC and Life insurance policy will pay for services that help you perform ADLs. If you cannot complete ADLs, then you may require an in-home caregiver or admission to a long-term care facility. And LTC rider typically pays for these expenses.
Long-Term Care Benefits payouts
An LTC rider will usually offer two payment methods: lump-sum or monthly payment. The simplest form of payout from the LTC rider is the lump-sum payment. In this case, once you receive the check from the insurance company, you can freely spend the funds however you want on living or medical costs.
Monthly payments or reimbursements can be slightly more work compared to lump-sum payouts. With this payout plan, you would be reimbursed for the amount of money you spent on long-term care during the month. Therefore, it is crucial to keep accurate records of the long-term care costs you incurred and then submit the receipts to your insurance company for payment. You may be allowed to choose between these two options, but some insurers make the choice for you. Make sure you understand the terms of the LTC rider before purchasing one.
Should I purchase a Combo Life Insurance Policy?
There are several factors to consider when deciding whether a life insurance policy with an LTC rider is right for you. By using the LTC rider, you will be directly reducing the death benefit of the life insurance policy. This could affect your financial planning if you still intend to leave money to your dependents. Furthermore, with rising costs of long-term care you may find your death benefit has declined to zero if you require care for an extended period of time.
A combo life insurance policy should not be your sole life insurance policy if you need income protection, like paying for a mortgage or college tuition. These types of policies are specifically designed to be paired with permanent life insurance and can be used in the event of long-term care needs. If you need simple death benefit coverage, then we would suggest a term insurance policy, which is a significantly cheaper option.
However, there are some advantages to life insurance with an LTC rider. One main advantage is that premiums for a combo policy are locked in. With a stand-alone long-term care insurance plan, the provider may increase premiums yearly. For example, Genworth, one of the formerly largest long-term care insurance providers, increased its policy premiums yearly by getting state regulatory approval. With a combo life insurance plan, you are locked into a steady premium rate.
In addition, you are guaranteed a return on your premium. In case you need long-term care, the premiums that you paid into the life insurance policy can be returned to you and used for assisted living expenses. On the other hand, if you never need long-term care, your policy still works as normal life insurance that pays a death benefit to your beneficiaries when you pass away.
For all of your questions that you might have with respect to why the combo life insurance and LTC policy is such a key solution in this current environment contact us here at Pinnacle Financial Services to discuss the main questions and concepts that you can utilize in discussions with your clients surrounding this important planning provision. We can also assist you with putting together illustrations and discuss why this planning solution can and should be discussed with clients moving forward.
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