Should I Purchase Life Insurance with an LTC Rider?

November is National Long-Term Care Awareness month. If you’ve not yet made provision for long-term care, it ought to be part of your financial planning for your retirement years.

With Americans living longer than ever, there’s a high probability that you will need long-term care at some point in your life. According to a 2021 report by the US Department of Health and Human Services, more than 70 percent of Americans will ultimately require some form of long-term care services.

Due to the rising cost of long-term care, some life insurance companies offer a combination of benefits for both events in a single life insurance policy.

What’s a Long-Term Care Rider?

Standalone LTC policies can be very expensive to buy. An LTC rider is an ancillary benefit that’s added to enhance the coverage of your life insurance policy.

This supplemental component pays out part of your life insurance policy’s death benefit while you are still alive, incapable of taking care of yourself, and need to pay for care or assistance. In other words, the rider allows you to use part of the policy’s death benefit for LTC while you’re still alive.

The LTC rider will only remain in force provided the base life insurance is also in force.

Benefits Triggers

You may activate an LTC rider if a licensed healthcare professional diagnoses you with a chronic health condition such as:

• Stroke
• Alzheimer’s disease
• Parkinson’s disease
• Stroke
• Cancer
• Heart disease
• Diabetes, etc.

You may also qualify to exercise the rider and get a partial payout of your policy’s death benefit if you’re temporarily or permanently unable to perform at least 2 of the 6 Activities for Daily Living

ADLs include:

• Maintaining bowel and bladder continence
• Walking or moving around freely
• Feeding yourself
• Dressing and undressing
• Bathing
• Toileting

While the rider covers expenses for assisted living facilities and home health care, it won’t reimburse you for prescriptions, surgeries, doctor’s visits, and other care typically covered by Medicaid, Medicare, or private health insurance.

“Every insurer has specific rules about how their life insurance riders work (qualifying conditions, benefit amounts, payout methods, waiting periods), so it’s essential to understand the full details of your policy,” says David Beckerman, Senior Vice President, Investments for David Lerner Associates. “Talk to your Investment Counselor about the benefits covered and what you’ll need to access those benefits.”

How Can I Access the Benefits?

Documents required for access to benefits include:

• Copies of medical records
• Certification form from a licensed health care practitioner confirming you’re chronically ill
• Completed claim forms
• Your plan of care

Most policies have a 90-day waiting period before you can begin receiving the benefit.

Pros and Cons of Adding an LTC Rider

Like everything in finance, adding an LTC Rider to your life insurance policy has benefits and drawbacks.

Pros

• An LTC rider can be used for both life insurance protection and paying for LTC services
• Most insurers guarantee that the premiums for your policy will never increase in the future
• You’re allowed to choose (within certain limits) the monthly benefit amount that best suits your needs
• If you only need a little bit or don’t need long-term care at all, then a death benefit will be paid to your family, meaning it’s not a “use it or lose it” proposition
• Some riders allow you to use your long-term care benefits outside the US
• An LTC rider is a wiser use of your money than saving it in a low-yield account to cater to long-term care expenses
• Some policies with an LTC rider have a money-back guarantee in case you decide to cancel the policy within a specified period

Cons

• Adding an LTC rider may be pointless if you can afford a standalone long-term care policy
• The cost of an LTC rider, plus other riders added to your policy, can cause your policy to lapse in the event that there’s a change in your financial circumstances
• Tapping into your policy’s benefits while you’re alive means there might not be much left for your beneficiaries when you die

Adding an LTC rider to your life insurance policy is a great way to financially prepare for your golden years without purchasing standalone long-term care coverage.

---

IMPORTANT DISCLOSURES

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. 

Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC