Are Long Term Care Riders and Insurance Worth It?

long term care riders

As a person ages and health declines, life gets expensive. The cost of long term care is something many people don’t consider when planning for retirement. You may find yourself paying $21 an hour for in-home aid, and up to $8,000 a month for a nursing home room.  The majority of us will need help doing basic daily tasks like getting dressed at some point in our lives. 

However, long term care riders and insurance are expensive. Is it worth paying the premiums? And what if you can’t get a long term care rider or insurance? 

What Are Long Term Care Riders and Insurance?

‘Long-term care’ is the support a person receives when they no longer can fully-care for themselves.  

Specifically, long term care insurance covers the cost of an in-home caretaker, assisted living facility, or a nursing home. 

Long-term care insurance will also pay for adult day-care and home modifications. As well as covering equipment like wheelchairs. Having these services available can often prevent someone from needing more intensive care. Such as moving to an assisted living facility. Allowing them to stay in their home longer. 

These riders are usually only available on permanent life insurance policies (whole or universal). The long term care rider allows policyholders to use their death benefit while they’re still living. 

To access long term care insurance funds you need to prove you are unable to fulfill 2 of 6 daily living tasks for 90 days. The daily tasks include:

  • eating
  • bathing
  • dressing
  • toilet use 
  • transferring (for ex. Getting out of bed)
  • maintaining continence

Who Should Get Long Term Care Riders?

When someone has many assets, they’ll have more options to fund long term care. They may be increasing their wealth in the stock market or gaining equity in real estate that they could sell or get a reverse mortgage on. Rental properties or selling a business could be relied on for funds for long term care. Someone may determine that the monthly premiums could be used for one of these investments with a better return. 

Sometimes someone doesn’t have as many assets (retirement fund, house, investments) but they still have the money to afford monthly premiums. In this case, a long term care rider is a good option. 

If leaving money for dependents is a top priority, a long term care rider could take away from that. Using a long term care rider will significantly decrease the death benefit for the beneficiaries. If you need long term care long enough, the death benefit could be zero. 

When someone turns 65 years old, they have a 70% chance of needing long term care services in their remaining years. So if you don’t have an alternative plan, the odds are a long term care rider is worth it. 

Should I Get A Long Term Care Rider or Long Term Care Insurance?

A long term care rider is an add-on for a life insurance policy. Alternatively, a long term care insurance policy doesn’t have a life insurance component. This means if you end up not needing long term care in your life, you don’t get anything out of your policy.

On the other hand, if you have a long term care rider attached to your life insurance policy, you have flexibility. If you don’t end up needing long term care, your beneficiaries will receive a death benefit. 

You also have a permanent life insurance policy that you could borrow money from or sell in a life settlement. Having a long term care rider on your policy is often called a combination policy. 

A rider will give you more consistent premiums. Long term care insurance policies have premiums that increase as the cost of care increases. An insurance company predicts what the cost of care will be in the future when they give you your initial premiums, but as that changes the law allows them to change your premiums. 

When It’s Too Late To Get a Long Term Care Rider or Insurance

You can add long term care riders to a policy when you first purchase one, or you can add one down the road. However, this option becomes less available and less affordable as you age and/or if your health declines. 

One out of three applicants aged 65-69 were denied long term care coverage by insurance companies in 2019. 

Medicare pays very little for long term care. If you do qualify, it only pays for 20 days in full, and a co-pay amount for the next few months. After that, you’re on your own. 

Many people don’t make proper arrangements because they assume that medicare will pay for their long term care. Medicare only covers healthcare from skilled professionals. You don’t need a professional healthcare worker to help you get dressed every morning. For this reason, long term care isn’t covered.  

Medicaid pays for long term care but only if you’re at your state’s poverty level. This means you have very little assets and income. 

Selling Your Life Insurance Policy in a Life Settlement

long term care riders

If it’s too late to add a long term care rider to your policy, another option is to sell your life insurance policy in a life settlement. You’re using your life insurance policy as an asset and have access to it before you die. This is similar to long term care riders in that you lose the death benefit but you’re given funds from your asset to use for long term care. 

Long term care riders are harder to get and less affordable as you age and your health declines. Alternatively, a life settlement becomes more obtainable as you age and your health declines. Your life insurance is worth more in a life settlement the older you get and the longer you have the policy. 

With a life settlement, you sell your policy in exchange for a lump sum. The buyer takes over the premiums on the policy and receives the death benefit when you die.

There are a lot of factors that determine what your life insurance policy is worth. If you’re at least 70 years old you can use a life settlement calculator to get an idea of what you could get from your policy. After that, reach out for a free consultation so we can answer your questions and help you determine the best option for you.

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