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How to Insure Your Income: Life Insurance LTC Riders

In recent years, some insurers have begun to offer long-term care coverage in the form of riders attached to life insurance policies or annuity contracts -- and even in connection with some other policy forms, such as disability income insurance. Life insurance LTC riders provide benefits very similar to those found in LTC policies.

One difference with LTC coverage attached to life insurance is the method of determining benefits. They may be expressed as a specific daily amount, as is the case with LTC indemnity contracts -- such as $50, $100 or $150 per day. But some riders express the benefits as a percentage of the face amount of the life policy.

Example: John has a $100,000 life policy with an LTC rider that provides a monthly LTC benefit of 2 percent of the face amount, up to a maximum benefit of $50,000. If John were admitted to an LTC facility, his benefit would be $2,000 per month, and John's maximum benefit period would be 25 months (after 25 months, the maximum LTC benefit of $50,000 would be exhausted).

There are basically two approaches to the LTC rider concept: a generalized approach and an integrated approach.

Under the generalized approach, the LTC rider is independent from the life policy, and the LTC benefits paid to the insured will not affect the life policy's face amount or cash value.

Under the integrated approach, the available LTC benefits are linked to the life policy's face amount and cash value. If you make an LTC claim on this kind of policy, the amount of money available to your beneficiaries shrinks.

A variation of the integrated approach is marketed as a living needs rider. This approach draws on the life insurance benefits to generate LTC benefits. Thus, the LTC rider is attached to the life policy at no additional charge. In a sense, it's like borrowing from the life insurance to pay LTC benefits.

Generally, the living needs rider provides funds for LTC expenses or for expenses incurred in connection with a terminal illness. Under this rider, the insured may be advanced life insurance dollars to cover these expenses. There are usually two benefit options associated with this rider:

  • the LTC Option, which typically provides up to 70 percent or 80 percent of the policy's death benefit to offset nursing home expenses; and
  • the Terminal Illness Option, which provides up to 90 percent or 95 percent of the death benefit as a pre-death benefit to be used to offset medical expenses.

The conditions under which these benefits are paid are determined by the contract and the insurance company.

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