Life Insurance Riders That Pay For Long-Term Care
Life insurance has many uses, including income replacement, business continuation, and estate preservation. Long-term care insurance provides financial protection against the potentially high cost of long-term care. If you find yourself in need of both types of insurance, a life insurance policy that combines a death benefit with a long-term care benefit may appeal to you. HERE’S HOW IT WORKS
THE APPEAL OF THIS COMBINATION POLICY LIES IN THE FACT THAT EITHER YOU’LL USE THE POLICY TO PAY FOR LONG-TERM CARE EXPENSES OR YOUR BENEFICIARIES WILL RECEIVE THE INSURANCE PROCEEDS AT YOUR DEATH.
Some life insurance issuers offer life insurance with a long-term care rider available for an additional charge. If you buy this type of policy, you can pay the premium in a single lump sum or by making periodic payments. In any case, the policy provides you with a death benefit that you can also use to pay for long-term care related expenses, should you incur them. The amount of death benefit and long-term care allowance is based on your age, gender, and health at the time you buy the policy. The appeal of this combination policy lies in the fact that either you’ll use the policy to pay for long-term care expenses or your beneficiaries will receive the insurance proceeds at your death. In either case, someone will benefit from the premiums you pay.
LONG-TERM CARE RIDERS The long-term care benefit is added to the life insurance policy by either an accelerated benefits rider or an extension of benefits rider. Accelerated benefits rider: An accelerated benefits rider makes it possible for you to access your death benefit to pay for expenses related to long-term care. The death benefit is reduced by the amount you use for long-term care expenses, plus a service charge. If you need long-term care for a lengthy period of time, the death benefit will eventually be depleted. This same rider also can be used if you have a terminal illness that may require payment of large medical bills. Because accelerating the death benefit can have unfavorable tax consequences, you may want to consult your tax professional before exercising this option. Example: You pay a single premium of $50,000 for a universal life insurance policy with a long-term care accelerated benefits rider. The policy immediately provides approximately $87,000 in long-term care benefits or $87,000 as a death benefit. If you incur long-term care expenses, the accelerated benefits rider allows you to access a portion, such as 3% ($2,610), of the death benefit amount ($87,000) each month to reimburse you for some or all of your long-term care expenses. Long-term care payments are available until the total death benefit amount ($87,000) is exhausted (about 33.3 months). Whatever you don’t use for long-term care will be left to your heirs as a death benefit. (The hypothetical example is for illustration purposes only and does not reflect actual insurance products or performance. Guarantees are subject to the claims-paying ability of the issuer.) Extension of benefits rider: An extension of benefits rider increases your long-term care coverage beyond your death benefit. This rider differs from company to company as to its specific application. Depending on the issuer, the extension of benefits rider either increases the total amount available for long-term care (the death benefit remains the same) or extends the number of months over which long-term care benefits can be paid. In either case, long-term care payments will reduce the available death benefit of the policy. However, some companies still pay a minimum death benefit even if the total of all long-term care payments exceeds the policy’s death benefit amount.
Wealth | Investments | Planning Commerce Trust Company
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