YOUR MONEY
By Bill DeMarco
It’s time to embrace the outdoors, relish the sunshine, and soak in the energy that only summer can bring.
Planning for today is great, but don’t forget to plan for tomorrow, too. That brings us to the topic of long-term care, a more serious topic than making the most out of summer but arguably a more important and far-reaching one.
If you’re thinking about buying a stand-alone long-term care insurance (LTCI) policy, you might have another option. An increasing number of states, including Ohio, permit the sale of long-term care hybrid products that allow you to obtain long-term care coverage with a special rider added to your life insurance policy.
How Does it Work?
When it comes to long-term care, you might be able to add an acceleration rider to your life insurance policy that will allow you to tap into (accelerate) your death benefit if you need long-term care during your life.
For such a rider to take effect, most insurers require a prognosis of death within 12 months, and your benefits may be limited to a percentage of the face amount in your policy. Your death benefit will be reduced by the amount of benefits you receive. If your long-term care costs are high, you may eventually deplete your death benefit (assuming your policy allows it). This would negate the original purpose of your life insurance policy—to provide financially for family members after you die.
Long-term care riders differ from company to company. Some reimburse you for long-term care expenses as they’re incurred, up to the limit set by the rider. In other cases, you may receive a percentage of the death benefit each month, which you can apply to long-term care expenses. Before you purchase a rider, make sure you understand exactly how you’ll be reimbursed.You’ll also want to know what triggers the prepayment of your death benefit that can be used for long-term care. For example, does needing home health care entitle you to benefits, or will you need to be chronically ill and unable to perform at least three activities of daily living to start receiving benefits?
What’s Best for Me?
Opinions differ on whether an acceleration rider can be an adequate substitute for a separate LTCI policy. The answer depends in part on the size of your life insurance policy, the money you’ll receive while the policy is in force to pay your long-term care costs, and how much long-term care is expected to cost when you need it.If you do the math, you’ll probably discover that an acceleration rider on your life insurance policy won’t cover all of your long-term care expenses, giving you a false sense of security. Plus, the benefits may exhaust the policy’s life insurance payout.
Stand-alone LTCI policies can be costly depending on your age, health, and benefits. If these costs are prohibitive, a rider on your insurance policy may be a middle-ground solution. A rider allows you to tap into money if you need long-term care (even if that means less for your surviving loved ones). Contact an insurance professional for more information.
