Life Insurance Policies with Long-Term Care Riders

Posted by Bob Burton on Mon, Nov 3, 2008 @ 11:09 AM

Robert E. Burton LLB CLU ChFC AEP, Director of Advanced Planning

There is increasing interest these days in life insurance policies with long-term care (LTC) riders. One of the incentives for this combination of benefits in a single policy, compared to a stand-alone LTC policy, is that, if LTC benefits are never needed, the premiums paid will not have been “wasted”, since the death benefit will be paid instead. Of course, there are many types of insurance policies that are purchased for pure protection, and where, if no claim is ever made, the premiums paid can be considered to have been “wasted”. Everyday examples include homeowner’s or renter’s insurance, automobile insurance, and liability insurance. Indeed, one hopes that no benefits will ever be paid under these types of policies, and stand-alone LTC coverage is no different: one purchases it for protection in the event it is ever needed, but one hopes it never will be needed.

In essence, LTC benefits paid out during the insured’s lifetime are an advance against the policy’s ultimate death benefit and reduce that death benefit dollar-for-dollar. It is not surprising, therefore, that the addition of a LTC rider to a life insurance policy does not significantly increase the premium in most cases; after all, benefits paid under the LTC rider are not an additional payment by the insurance company but rather a payment made sooner in time. (There is at least one exception to this: under the John Hancock policies, a second rider, the MAX rider, can be added that essentially doubles the amount of available LTC benefits. This is particularly useful when the LTC rider is attached to a relatively small life policy. This rider is available in most, but not all, states.)

As with stand-alone LTC policies, LTC benefits under a LTC rider are either on a reimbursement basis (under most policies) or on an indemnity basis (Nationwide’s policies).

In the meantime, if anyone has any questions about any of the matters discussed or wishes to obtain illustrations, please contact Bob Burton: bob@provada.com or 415-369-9990, ext 116.