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Do You Need A Long-Term Care Rider On Your Life Insurance Policy?

Do You Need A Long-Term Care Rider On Your Life Insurance Policy?

November 04, 2020
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Life insurance may be no one’s favorite topic—most of us don’t like to think about our own death. But life insurance is an important component of your financial planning and security, both for yourself and your family. 

If you’re already a life insurance policyholder, good for you. You’re one step ahead of the 46% of Americans who don’t own a life insurance policy. (1) But making sure you have enough life insurance—or knowing what other benefits you may need to add on to your policy—is something about which we could all become more educated. 

According to the U.S. Department of Health and Human Services, people turning 65 in 2020 have a 70% chance of needing some type of long-term care (LTC) as they age. (2) With longer life expectancies, LTC expenses are becoming an important part of the financial planning process. For this reason, some people are adding LTC riders to their life insurance policy.

What Is A Long-Term Care Rider?

To define LTC riders, we must first understand the difference between a death benefit and a living benefit.A death benefit is what we typically think of when it comes to life insurance. A death benefit is paid out to your beneficiaries upon your death (usually as a lump sum), and can be used to temporarily replace your income, cover funeral expenses, or pay for end-of-life medical care costs. 

Living benefits, on the other hand, are benefits paid out to a life insurance policyholder while they are still alive. An LTC rider is an optional living benefit you can add to your life insurance policy that will help to cover costly medical expenses and other LTC needs as you age. 

How Does A Long-Term Care Rider Work?

An LTC rider is an add-on to a life insurance policy that can offer extra security as you age. Typically, any LTC benefits paid out to you, the policyholder, will reduce the amount of money paid to your beneficiaries upon your death. Additionally, the LTC rider will have a maximum monthly benefit and a maximum lifetime benefit.

To start receiving LTC benefits, a doctor will need to confirm that you’re unable to perform at least two activities of daily living (ADLs) on your own. Six ADLs are considered, which include your ability to:

  • Feed yourself
  • Bathe yourself
  • Get dressed on your own
  • Get from one place to another
  • Use the toilet
  • Maintain bladder and bowel continence

The conditions of LTC riders depend upon the insurer, but some LTC riders do not require bills or receipts to be submitted in order to receive payments. Some riders also allow for benefits to be paid to family members who provide care, rather than certified healthcare workers. It’s important to fully understand the terms of any LTC rider you’re thinking of purchasing.

Do You Need A Long-Term Care Rider?

Long-term care is expensive. Depending on the level of care you need and whether you live at home, in an assisted living community, or in a full-time nursing home, long-term care can cost anywhere from around $20,000 to $100,000 per year or more. (3) If you haven’t factored these costs into your retirement planning, LTC insurance can help fill that need.

Unfortunately, LTC riders come with expensive premiums because long-term care itself is expensive. But adding an LTC rider to your life insurance policy can be less expensive than purchasing a stand-alone LTC policy. 

Additionally, there is always the chance that you won’t use LTC benefits. If that’s the case, an LTC rider is a good option because your beneficiaries will simply receive the full death benefit of your life insurance policy. If you never use the benefits from a stand-alone LTC policy, the money spent on those premiums is money down the drain.

1on1 Financial Can Help You Answer These Questions

As with most financial planning decisions, adding an LTC rider to your life insurance policy is entirely dependent on your total financial picture. It’s always best to consult with a financial professional to get an objective perspective on what you need, what you can afford, and what will provide you with the most security. 

At 1on1 Financial, we believe financial planning should be entirely based on your unique situation. Everything we do is designed precisely for you. If you’re looking to partner with a comprehensive financial advisory firm that can help you answer these tough questions, call our office today at 909-981-1720 or simply click here to schedule a free 15-minute introductory phone call.

About 1on1 Financial

1on1 Financial is an independent financial advisory firm specializing in guiding working and retired professionals, executives, and business owners along the path to financial well-being. Founded in 1997, we use a team approach to help our clients accumulate wealth, generate income, preserve their life savings, and strategically plan for the distribution of their estate. With more than 50 years of combined experience in the financial services industry, we remain true to our fundamental mission: to provide personalized guidance, treatment, care, and service so our clients can gain control of their future and feel confident in their financial life.

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(1) https://www.statista.com/statistics/455614/life-insurance-ownership-usa/ 

(2) https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html 

(3) https://www.genworth.com/aging-and-you/finances/cost-of-care.html