What is a Term Life Insurance Policy with Long Term Care Rider?

The need for long-term care

The need for long-term care is increasing. People are living longer, and health care costs are rising.¹ The U.S. Department of Health and Human Services (HHS) predicts that by 2050 at least half of elderly Americans will be needing long-term care.²

Long-term care insurance (LTCI) covers care in a nursing facility and in an assisted living community. An LTCI commonly provides coverage for adult day care services, as an option, as well as home health care and hospice care coverage.

Long-term care insurance coverage began in the 1960s and rose to popularity through the 1980s.³ You could purchase an LTCI policy and be assured your long-term care would be financially provided.

In 2011, the first of the baby boomers were nearing retirement age. Baby boomers are people born between 1946 and1964 and comprises 76.4 million boomers.⁴

Along with nursing homes growing in need and number, assisted living communities grew in high demand. These living facilities are structured as apartments and small living domains for people who need on call assistance but are not dependent on a nursing home and full-time care.

By the 2000s, LTC insurance companies were losing money. They underestimated the amount of people, including the substantial number of Baby Boomers, who would reach the need for care, and therefore, the benefit payout of an LTCI policy.⁵

Owning a policy and paying premiums became more costly to policyholders, and paying benefits for rising health costs became more costly for the insurance company. There were cases where individual policyholder’s claims were denied due to the insurance companies lack of financial stability, or the insurance company went out of business leaving long-term care policyholders with nothing. ⁶

In 2004, there were over 100 insurers that issued LTCI policies, and by 2020, there were fewer than a dozen.⁷ The declining number resulted in Seniors having little or no access to an LTCI, even though they had paid the premiums.⁸

If you decide to buy an LTC insurance plan, it is best to do your research on the insurance company and their financial ratings and stability. Find out the facts on what the LTCI policy covers and for how long. You don’t want to be paying premiums on a product that will not cover your needs when you are ready to use them.

Other products address long term care.

Hybrid Life and Annuity Products

A popular variation to purchasing an individual LTCI policy is to buy a rider LTCI policy on a term or whole life insurance policy. The LTCI rider sometimes is referred to as a living benefit or accelerated death benefit. Under this rider, the policy may cover chronic, critical, and terminal illness.⁹

The combination of a life insurance with a long-term care rider allows the policyholder to continue paying premiums toward a death benefit for their loved ones, as well as use part of the benefit to care for themselves if needed while living.

There are pros and cons with a life insurance policy that has the LTC rider.

Pros:

If the long-term care benefit amount is not used or exhausted, it is paid out as part of the death benefit.
Both the insurance policy and rider are combined toward a monthly single premium.
The risk of future premium increases is low.
If it is a whole life insurance policy, there may be additional cash value for long-term care needs.
With a whole life insurance policy, you may borrow or withdraw cash from the policy. If you do not replenish the amount, the death benefit will lower in the final amount.

Cons:

The LTC rider may not be enough to cover the costs of assisted living or a nursing home.
If the LTC rider is tied to a term insurance policy, the term may end, and the rider benefits may as well.
The premium amount for this combined coverage may be higher than a whole life insurance policy because it pays both benefits.

Buying a life – annuity insurance policy with a chronic illness benefit might be an alternative. This type of insurance is not specifically earmarked as LTC benefits. The policyholder may use the benefit for LTC services under the chronic illness requirements, which allows acceleration of death benefits or other benefit features.

Single Premium Whole Life insurance

An acceleration rider allows the policyholder to access the death benefit for LTC services. This benefit is usually paid in monthly amounts over a 20-to-50-month period.
The extension rider policy can be added onto the acceleration rider policy, and can continue to pay the LTCI benefit after the acceleration rider has been exhausted; or
There is a final death benefit if the policy has not been exhausted by the extension rider payout.

Points to consider if purchasing a whole life insurance policy with these types of riders are:

The whole life insurance policy should be fully paid up; or if it’s a universal life policy, the policy needs to completely funded for a death benefit guarantee.
These policies have more stringent underwriting requirements.
LCT rider policies yield greater benefits per dollar compared to an annuity LTC hybrid insurance policy. Because annuities are based on the financial investment market, and fluctuations may affect the annuity at the time of the benefit payout.

Start with a plan

A long-term insurance policy that stands alone may or may not be the direction for your future needs. Currently, a majority of Americans do not have a whole or term life insurance policy.¹⁰ This may be the best place to start. Buying a life insurance policy helps protect your future and your loved ones.

Some supplemental insurances policies may not be specifically designated as a long-term care benefit, but these types of policies can be helpful. Critical illness, cancer, hospital indemnity, and other supplemental insurance plans can ease costs when going through a health care challenge.

These factors may influence your decision making toward buying or not buying a long-term care insurance policy:

Age and life expectancy;
Gender;
Family circumstances;
Health status; and
Income and assets.

Examining each of these factors may help determine whether a LTCI policy is right for you or not.

Meanwhile, the National Association for Insurance Commissioners (NAIC) has created a special task force and works with state insurance regulators to improve the LTC insurance rate review and approval process. The NAIC formed the Long-Term Care Insurance Task Force in 2019, which continually is improving the evaluation and actuarial review of appropriate rate increases for consumers. ¹¹

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Categories: Insurance, Life Insurance, Term Life Insurance

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What is a Term Life Insurance Policy with Long Term Care Rider?

The need for long-term care

Hybrid Life and Annuity Products

Single Premium Whole Life insurance

Start with a plan

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