Long Term Care Rider

Long Term Care RiderThe U.S. Department of Health and Human Services defines long term care as care that you may need when you are no longer able to do regular, everyday  tasks (activities of daily living) on your own due to persistent, incurable diseases, injuries, disabilities or due to old age. “At least 70 percent of people over 65 years will require some long term care services at some point in their lives.” Long term care includes “the supervision you might need due to severe cognitive impairment such as Alzheimer’s disease. Long term care isn’t intended to cure you.” It is continuing care that you may need for the rest of your life. It can be very costly “depending on the type of care you need and location where that care is received.” That’s why you can purchase a long term care rider on your life insurance policy.

The significance of obtaining some of form of long term care protection cannot be disputed. Statistics show people are living longer now than ever before which increases the importance and likelihood of needing long term care. Due to the length of the duration of care ever increasing, the cost of long term care continue to rise. According to ProducersWeb, there has been a rapid increase in alternative forms of long term care in the past decade. There are some who wonder if “covering the potential need for long term care is most effectively handled via long term care riders on life insurance or annuity contracts, or via stand-alone long term care policies.”

LongTermCare OptionsA long term care rider is described as “a provision that can be added to a cash value life insurance policy (though there is now at least one product on the market, and perhaps more than one, that actually offers long term care rider on term life) or to an annuity contract to provide coverage for long term care that would otherwise not be covered in the primary contract. In addition, an extension of benefits rider often can be added to the basic long-term care rider to provide coverage for a period of time, even after the life specified amount or annuity contract value has been depleted.” The benefit amount of long term care is calculated and determined by specified amount on the primary contract or value at the time long term care is needed.

There are many reasons long term care riders have become more popular. One of the main reason is that adding a long term care rider is inexpensive “due to the fact that the insurer is simply paying out the life policy’s proceeds before death, versus actually increasing the specified amount.” Ultimately, the reality there is an increasing demand for easier, inexpensive ways “to address the potential need for long term care” has grown over the past several years, and consequently, life and annuity riders have multiplied. On the other hand, traditional long term care policies are now more flexible and have varied provisions, such as “benefit banks versus set benefit amounts for set periods of time, or even offering return of premium features. Some policies today may also have broader and more easily triggered ADLs.” These changes are not only due to more accrued experience and “underwriting history for these products in the industry,” but also as a result of market demand and the “competitive pressures brought by the long term care rider phenomenon.” The central objective and purpose of the long term care policy is unchanged, however, and that is to provide an all-inclusive policy designed specifically to provide coverage for costs and expenses associated with long term care, such as to provide coverage for adult day care, nursing home facility, home health care, etc.

How does a long term care rider work?

According to Nationwide, when a primary holder adds a long term care rider to their policy, any payout that is made is an “acceleration” of their life insurance death benefit.

  • The primary holder has the right to select the long term care specified amount when s/he purchases the policy.

  • “The long term care benefits are paid income tax free after qualifying requirements are met.”

  • If the primary does not need long term care, the “beneficiaries will receive an income tax-free death benefit as long as [the] policy remains in force.”

  • If the primary holder does need long term care, the “beneficiaries will still receive the greater of any unused long term care benefits or 10% of the based policy’s specified amount (less any policy indebtedness) thanks to the guaranteed minimum death benefit.”

Who pays for what?

Private health insurance

Only covers for medical care, “where the patient shows signs of improvement.”

Medicare

Provides coverage for temporary long-term care- up to 100 days- in a nursing care facility immediately following a hospital-stay of three days or more. “After 20 days, the patient incurs a $148.00 co-pay (2013).”

Medicaid

“Requires a person to spend down or have countable assets of $2,000 or less (depending on the state), to receive long-term care.”

Social Security

“Does not provide any sort of special funding.”

Long-Term Care Rider vs. Long-Term Care Policy

Long Term Care PolicyIt all depends on the person’s needs, preferences, age, health and financial ability. When considering long-term care riders, there are a few major points to consider regarding this significant planning question. Make sure to consult with your trusted, independent insurance agent about the various components and aspects of the policy, the benefits and the premiums offered. Find out how much the rider has to pay and  “whether the rider pays in a reimbursement or first dollar basis,” as well as whether the insurance company “pays the insured directly,” or whether the payment goes to the facility providing the care, etc. “Also, the rider normally allows the policyholder to utilize some or all of the policy’s specified amount, or death benefit, for long term care costs, either for a period of time or until the available coverage amount has been exhausted, under stated terms — usually 2 percent or 3 percent of the specified amount per month.” With your agent, figure out the cost of including a benefits rider, factoring in your financial situation and long term care needs. With a rider “added to the long term care rider, the policy will continue to pay long term care expenses even after the policy-specified amount or death benefit is exhausted.”

According to ProducersWeb, in contrast to the long term care rider, the Extension Of Benefit rider will always be an ancillary cost, so make sure to evaluate the costs versus the benefits and compare to the stand-alone long term care policy. With having two riders, you will want to make sure that your long term care needs are protected “under the terms offered, for a considerable period of time, if not until death.” The advantage of the long term care rider on an annuity is that “there is usually no underwriting required, which is a great advantage to a [client] with a pre-existing health issue or who cannot qualify by health for life or long term care coverage.

As mentioned earlier, even though it is cheaper, there are some disadvantages to having long term care rider versus stand-alone long term care policy. One of the disadvantage is the life insurance death benefit is reduced by long term care costs and expenses, as a result there is hardly any amount left for the beneficiaries, and in fact, “depending upon the primary policy and rider, the entire death benefit may be depleted in the event of a long term care need, leaving nothing to heirs.” Secondly, under long-term care riders, the insurer only pays the incurred charges of the long term care expenses, which means “there is no set benefit amount that can be depended upon, and that the client’s control over care is not maximized, as it is the long term care policy that pays a full, pre-determined benefit amount directly to the policyholder.” Thirdly, long term care riders usually have a limit on the amount paid per day or per month which means that the policy does not pay more than a specific percentage of the set amount — again, “usually based upon 2 percent or 3 percent on a monthly basis, versus the set benefit amount paid in full,” as chosen by the insured under a stand-alone long term care policy. This may mean maximum long term care benefits are not sufficient, “and again requires that great consideration be given to choosing a specified amount on the primary policy to account as fully as possible for potential long-term care needs in the present and the future.” Lastly, it is extremely important that one comprehends that any payments made for long term care under the rider(s) is deducted from the indicated amount of the life insurance policy. Upon on their death, the amount paid to the beneficiaries will be subtracted by “the amount that the policy has already paid out for long term care expenses under the rider(s). Also, there may be tax consequences in some states, which must also be considered.”

Other Enhanced Insurance articles related to Long-Term Care Insurance:

Alzheimer’s, Dementia, and Long-Term Care Insurance

Why Didn’t My Parents Buy Long-Term Care Insurance

Is There a Benefit to Purchasing a Limited Pay Long-Term Care Policy

Do I Need Long-Term Care Insurance

Long-Term Care Insurance (With Video)

Critical Illness Insurance

Group Long-Term Care Insurance

Medicare and Medicaid in Regard to Long-Term Care

The Cost of Long-Term Care Insurance

Types of Long-Term Care Insurance

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