Life Insurance That Pays for Long Term Care

Most people think that life insurance only serves its purpose at death.  That is not necessarily the case.  In many instances, life insurance can offer plenty of benefits that you can use while you are alive.  One thing that life insurance can cover is long term care expenses. When you purchase a life insurance policy with a long term care benefit rider (LTC rider), you are able to use the policy to pay qualified long term care expenses.  If you never use the long term care benefits, your policy will still allow you to leave a tax-free death benefit to your heirs.

Alarming Statistics About Long Term Care

• The median annual rate of care in the U.S. is $45,188 for home health care and $87,600 for nursing home care. (Source: Genworth 2014 Cost of Care Survey)
• 70% of people turning age 65 can expect to use some sort of long term care during their lives. (Source: www.longtermcare.gov)
• Nearly 41% of long-term care is provided to people under 65 years old who need assistance due to diseases, injuries, disabling conditions, or accidents. (Source: Federal Long Term Care Insurance Program)
• About 42.1 million unpaid family caregivers provided an estimated value of $450 billion of care in 2009. (Source: AARP Public Policy Institute)

How Does a Long Term Care Benefit Rider Work?

When you purchase a life insurance policy with a LTC rider, you can accelerate the death benefit for qualified long term care expenses.  What are qualified expenses? In most cases, if you have been certified chronically ill by a doctor and unable to perform 2 of the 6 Activities of Daily Living, you will qualify for long term care benefits.  The 6 Activities of Daily Living are: bathing, continence, dressing, eating, toileting and transferring.  There is usually an elimination period that must pass before you can start collecting benefits. You can also collect benefits if you have a severe cognitive impairment such as Alzheimer’s or irreversible dementia.

You can usually accelerate a certain percentage of the death benefit for monthly benefits but in most cases it is capped by the per diem amount allowed by HIPAA.  For instance, if you have a policy with a $300,000 face value and you are allowed to accelerate 2% of the death benefit for monthly long term care benefits, you would be able to use $6,000 per month from your life insurance policy to cover long term care costs.  The insurance company will usually put a limit on the total amount of long term care benefits you can pull out of the policy equal to a certain percentage of the face value of the policy, such as 90%.

Seperate Underwriting

The LTC rider is separately underwritten from the base policy.  When you apply for life insurance, you will be required to go through the usual underwriting process such as taking a paramedical exam, answering a medical questionnaire and providing your medical records. When you add the LTC rider, the insurance company will conduct separate underwriting focusing on factors related specifically to your potential needs for long term care benefits. Additional underwriting might be required of you are older and applying for life insurance and adding the LTC rider.  You might be required to meet with a specialist that can observe your physical and cognitive abilities through a series of tests.

Beware: Not All LTC Riders Are the Same

There are a handful of insurance companies that offer LTC riders on permanent policies such as John Hancock, Transamerica, Nationwide and AXA. A whole other blog post could be written on how each company differs with regards to LTC rider features so we won’t go into that here.  You can expect to see differences in benefit features such as monthly LTC benefit limits, elimination periods, the amount of total benefits allowed, how benefits are paid (reimbursement vs indemnity)  and cost among the companies offering LTC riders. It is best to use an independent agent who can get quotes and LTC rider benefit specifics from multiple insurance companies so that you can decide which product will best suit your needs.  One very important fact to note is that it is especially important to make sure that the underlying life insurance policy meets your needs as it is meant to be a life insurance policy with added long term care benefits and not just simply a long term care policy.

Is a Life Insurance with a Long Term Rider Worth It?

Long term care is expensive with the cost expected to rise over time. Even if you choose to add a LTC rider to a smaller policy, it could give you the needed protection to cover part or all of any LTC expenses  you might incur down the road. Most stand-alone LTC policies are “use it or lose it” policies where if you never need benefits, the premiums paid are lost.  Also, premiums for most stand-alone policies are not guaranteed and can increase over time. A LTC rider attached to a life insurance policy, on the other hand, costs less than a standalone policy and the rate for the LTC rider is set at policy inception and does not increase.  Even if you never access the LTC benefits of a life insurance policy, your loved ones will get a death benefit when you pass away.

Conclusion

This was a simple explanation of how LTC riders work and how they can provide additional living benefits to life insurance coverage so you can get the most out of your policy.  It is best to work with an independent agent who can show you several viable options from various companies and explain the differences between each.  If you are interested in life insurance with an LTC rider we would be happy to show you your options.   We have access to over 40 insurance companies and will use all of our resources to get you the best coverage option available. Please feel free to give us a call at (888) 687-9444 or email us at info@archstoneagency.com if you have any questions.

Archstone Insurance Services, LLC is an independent agency that shops over 40 of the top life insurance carriers to provide huge savings on life insurance coverage for our clients.  We are happy to answer any questions you might have about any of the insurance products we offer, your planning needs or your existing coverage.  Feel free to call us directly at (888) 687-9444 or email us at info@archstoneagency.com.  You can also visit our website at www.archstoneinsurance.com.