MoneyLife

What Are the Different Types of Long Term Care Riders

By Marc Guberti
long term care rider

Riders give policyholders extra benefits and layers of protection to hedge against uncertainty. Although adding riders to your policy will boost your premiums, the perks can save you considerable money if an emergency occurs. Long term care riders present extra coverage to help policyholders in the event they need long-term care.

What is a long-term care rider?

A long-term care rider allows a policyholder to use a portion of the death benefit to cover long-term care expenses. This coverage will enable policyholders to afford long-term care while continuing to make payments for their insurance plan.

How does a long-term care rider policy work?

Using funds from your death benefit for your long-term care rider comes at a cost. Any proceeds you use to cover your long-term care expenses will take a toll on your death benefit. Although no one hopes to utilize this rider, the high costs of long-term care make it a necessary rider for some policyholders. Policyholders can only qualify for the long-term care rider if:

  • A medical professional deems the policyholder cannot perform more than two vital daily activities.
  • The policyholder has a chronic illness such as diabetes or heart disease.

Why is a long-term care rider important?

Long-term care gets expensive, and most patients cannot work at a full-time job. Without a steady income stream to cover long-term care expenses, insurance premiums, and other costs of living, a long-term care rider comes to the rescue. 

Some policyholders derive their entire proceeds from their death benefit, and it’s the difference between making payments and falling behind. A long-term care rider provides aid during a dire situation. You may not need the long-term care rider, but you may end up needing it in the future. This uncertainty prompts some policyholders to add the rider to their policy.

Types of long term care rider policies

While a long-term care rider is helpful for some policyholders, you can select from multiple long-term care riders. Each policy contains its perks and disadvantages.  

Indemnity plans 

Indemnity plans, also known as fee-for-service plans, provide you with partial coverage of medical bills. For these co-insurance policies, once you make a deductible, your insurer will start covering additional costs.

Best For: Flexibility to decide which doctors and health care providers they can visit. 

Benefits: You can visit any physician of your choice for services rather than choosing from a pool of physicians the insurer hand picks. This preference gives more control to the policyholder.

Disadvantages: You pay upfront for services and then ask your insurer to reimburse you. Insurers only pay the UCR (usual, customary, and reasonable) rate. Make sure you know your insurer’s UCR rate.

Reimbursement plans

Reimbursement plans cover employees for work-related expenses, but they must itemize individual expenses. A cost must be ordinary and necessary.

Best For: Employees who frequently incur work-related expenses. 

Benefits: Reimbursement plans cover a more comprehensive range of expenses rather than exclusively medical expenses.

Disadvantages: Expenses must be ordinary and necessary to apply for reimbursements. Policyholders are responsible for itemizing each expense to ensure expenses get reimbursed.

Alternatives to long term care rider

The long-term care rider provides policyholders with a backup plan if they end up in long-term care. However, policyholders seek alternatives as to the long-term care rider results in higher premiums. When assessing different add-ons for your policy, consider these choices.

Short term care

Short-term care riders provide coverage for a year or less. While this shorter time window hurts if you end up needing long-term care for multiple years, this rider comes with lower premiums and no waiting period. Some Long term care riders come with 90 day waiting periods. Short-term care riders give you immediate access to coverage.

Annuity long term care rider

An annuity long-term care rider is similar to a long-term care rider. The main difference is that the proceeds in an annuity long-term care rider can appreciate over time. You make premium payments now and receive annuities at a designated time in the future. The primary disadvantage with an annuity long-term care rider is that this policy requires a substantial upfront premium payment.

Stand alone long term care rider 

A stand-alone long-term care rider provides you with additional coverage compared to a regular long-term care rider. The underwriting process for these policies is less stringent, which benefits people with medical conditions. However, these policies are prone to future rate hikes, and if you let the policy lapse, you’ll receive nothing in return for all of your payments.

Chronic illness rider

A chronic illness rider is more specific than a long-term care rider. This rider allows policyholders to tap into their death benefit if they contract a qualifying chronic illness. Some insurers provide their policyholders with this rider at no extra cost, making it a more affordable alternative to the long-term care rider.

Health Savings Account (HSA)

A health savings account reduces your tax burden while allowing you to allocate funds for medical expenses. Using health savings account for co-insurance, deductibles, and other medical-related costs will lower overall costs. You can only contribute to a Health Savings Account if you have a High Deductible Health Plan.

An HSA provides you with a resource to lower your out-of-pocket medical costs. Banks and financial institutions will assist if you want to open an HSA.

Which type of long-term care rider is best for you?

Each person is different. When choosing your policy, consider the coverage and your ability to pay premiums. You don’t want to select a policy you can’t afford, but you also want protection if you need long-term care in the future. 

Create a long term financial safety net with MoneyLion

Policyholders pay for the insurance because they want protection. They want assurance that if life deals them a bad hand, they are prepared. While policies often prepare you for the worst-case scenario, MoneyLion prepares you for any scenario.

MoneyLion’s Financial Safety Net allows members to manage their finances and get quick access to a 0% APR Instacash microloan to help cover expenses. Build your financial safety net with MoneyLion today.

FAQs

What effect can long-term care benefit rider have on a life insurance policy?

A long-term care benefit rider will increase your premiums. Any proceeds you pull out because of the rider will reduce your death benefit.

Is long-term care the same as life insurance?

Long-term care allows you to pull money out of your death benefit to cover long-term care expenses. Life insurance does not provide this option, but both scenarios give the remaining death benefit to your beneficiaries when you die.

Are long-term care riders tax deductible?

The proceeds you make from long-term care riders are tax-deductible. This ruling is because the proceeds are considered “amounts received for personal injuries and sickness.

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