What is a Long-term Care Rider?
A long-term care rider is a life insurance policy addition that allows the insured to access some or all of their policy’s death benefit while they’re alive if they need long-term care.
Long-term care rider 101
Some life insurance companies offer long-term care (LTC) riders as an optional addition to specific life insurance policies. In most cases, LTC riders are only available for permanent life insurance policies.
The rider stipulates that if a medical professional deems the insured unable to perform a specific number of the activities of daily living (ADLs) on their own, they can access some or all of their policy benefit. ADLs include:
- Getting to and cleaning yourself after using the toilet
- Getting up from a chair or out of bed without help
- Maintaining continence
Usually, if you’re unable to handle two of these six ADLs on your own, you’ll be eligible to activate your LTC rider. Certain medical conditions, like Alzheimer’s disease, may also activate the rider.
That kicks off an elimination period (e.g., 90 days), during which you must wait. This is the insurer’s way of ensuring that you need long-term care, not just temporary assistance.
After that point, you’re entitled to use money from your life insurance policy’s death benefit to cover the cost of your long-term care. Your death benefit will get decreased proportionally to the amount of money you use for LTC.
Ultimately, LTC riders function very similarly to standalone long-term care insurance. Adding this rider to your life insurance policy will increase your premiums, but it may be more cost-effective than buying LTC insurance on its own.
Using LTC rider benefits
Your LTC rider will generally cap how much this policy feature can pay out, although some policies allow you to expend your full death benefit.
Generally, LTC riders get structured in one of two ways. You might get a lump sum of money after the elimination period that you can use however you want, whether that’s for occasional help or a live-in aide.
Alternatively, many LTC riders offer this benefit as a monthly payment. In this case, the cap on payout usually gets structured as a percentage of your total death benefit that you can use each month, with a lifetime maximum.
Your life insurance company may reimburse you on a monthly basis for the money you pay toward long-term care, up to the stipulated limit. In that case, it’s important for you to keep diligent financial records pertaining to your LTC so you can show the life insurer what you’ve paid and get reimbursed accordingly.
Long-term care riders vs. accelerated death benefit riders
An LTC care rider might sound similar to an accelerated death benefit rider, and these two riders do function a lot alike. The main difference is the diagnosis that activates the rider.
With an LTC rider, you need to have a qualifying illness or the inability to perform a certain number of ADLs. To activate an accelerated death benefit, you’ll generally need to have a terminal illness with a year or less to live.
Can you use life insurance to pay for long-term care?
Standalone long-term care insurance doesn’t have a death benefit. But if you buy life insurance with a a long-term care rider, you have a way to pay for later-in-life care and your beneficiaries will still get a policy payout if you don’t end up needing it. This gives you life insurance with living benefits, meaning you can use part of your policy benefit while you’re alive.
The rider allows you to tap into your death benefit to cover the cost of your long-term care. Your long-term care/life insurance hybrid policy comes with some requirements, though. In order to get your long-term care covered, you usually need to be diagnosed with a chronic illness, like:
- Alzheimer’s disease and dementia
- Heart disease
- Parkinson’s disease
Furthermore, to qualify for long-term care coverage, your illness usually needs to interfere with your ability to perform daily activities. Insurance providers usually kick in coverage when you can’t do at least two of these six things, which they call activities of daily living (ADLs):
- Get dressed
- Maintain your personal hygiene (i.e., bathe or shower)
- Control your bladder and bowel movements
- Use the toilet normally (i.e., get there and clean yourself after)
- Get in/out of a bed or chair on your own
Can term life insurance be used for long-term care?
Not usually. In most cases, if you want a life insurance policy with a long-term care rider, you’ll need to get permanent life insurance. The riders you can attach to term policies, which expire after a certain number of years, are generally fairly limited. However, there are a few term policies on the market that do offer a long-term care rider.