Before you tune out saying “I don’t need life insurance” or “I already have life insurance”, for purposes of this article, we’re focusing on life insurance as a vehicle to gain protection from future long-term care costs. Meaning, that most of the time, the death benefit is not the primary purpose for purchasing the policy. Rather, we are purchasing the policy to protect against future potential long-term care expenses. The death benefit is merely a back-up if long-term care ends up not being needed.

Until recent years, using a life insurance policy to pay for long-term care expenses was unheard of. However, since January 1, 2010, insurance companies have been allowed to offer long-term care coverage as a rider on term life, whole life, and universal life insurance policies.

The basic concept is that the insurance company will allow the insured to accelerate the death benefit of the policy if the insured is unable to perform two of six daily living activities (eating, dressing, bathing, transferring, toileting, or continence) or if the insured is cognitively impaired.

The most attractive feature of this type of plan is the ability of the insured to use the money to pay for home health care, assisted living, or skilled care. Often the policy will even allow the insured to pick who his or her caregiver is, which may include family members.

Common Features of Life Insurance with a Long-Term Care Rider

As is common in the insurance industry, the structure of the policy, coverage, and available riders will vary from one policy to the next, but here are the common features that we see:

  • The policy is usually based upon a whole life insurance policy or universal life insurance policy.  The policy can be paid annually, as a lump sum, or for a specified period of time such as 10 or 15 years after which the policy is “paid up”.
  • Since the policy is based on a life insurance policy, the policy will include a death benefit.
  • The long-term care rider on policy provides a pool of money for potential long-term care costs.
  • Typically, if you use the pool of long-term care funds, your death benefit will reduce dollar for dollar. In other words, if you started with a $100,000 death benefit and you end up using $40,000 to pay for long-term care costs during your lifetime, there may only be a remaining death benefit of $60,000 paid to your beneficiaries.
  • The policy will generally stipulate the maximum that can be paid for long-term care on a monthly basis. For example, the policy might state that the maximum long-term care benefit is $8,000 per month up until the entire long-term care benefit pool has been depleted.
  • If the policy is based upon a whole life or universal life policy, the policy will have cash value.
  • Some policies offer a “return of premium” option—if you change your mind and want to cancel the policy, you can get all of your premium back (less any benefits that were already paid out).
  • Additional riders are usually available, for added premium, to increase the amount of long-term care coverage. For example, the base life insurance policy with long-term care rider might provide that the pool of long-term care funds is equivalent to the death benefit. So, if your death benefit is $100,000, then you can use up to $100,000 for long-term care costs. An additional rider may be purchased that adds additional long-term care coverage such as doubling the long-term care pool to $200,000 (but the death benefit remains at $100,000), or turning the long-term care benefit into a lifetime long-term care benefit.

Benefits of Life Insurance with a Long-Term Care Rider

Compared with traditional long-term care insurance, a life insurance policy with long-term care rider offers the following benefits:

  • Premiums are guaranteed—meaning that they cannot increase in the future. You know exactly what to expect and can budget accordingly.
  • If you don’t need care or only need a little bit of long-term care, then a death benefit will be paid to your family so it’s no longer a “use it or lose it” proposition.
  • Interest rates paid on the cash build up in the policy usually are comparable to or will exceed returns received in a low-yield account such as a Certificate of Deposit.
  • You can purchase a policy with a guaranteed return of premium feature if you have concerns about getting your money back (though of course if you trigger this, you’ll no longer have long-term care coverage).

For a sample case study using a Life Insurance Policy with Long-Term Care Rider, read the next article in this series, “Legacy Assets” as a Long-Term Care Solution.

We Can Help You Develop a Long-Term Care Plan

Having assisted many Wake County clients with long-term care planning, our team at Carolina Family Estate Planning understands that developing a long-term care plan is about not just protecting your own independence and dignity, but also protecting those you love from the physical, emotional, and financial toll that caring for a loved one can take.

We’ve helped many clients take an interdisciplinary approach to their long-term care planning by exploring both legal and financial options. Usually, a well-rounded long-term care plan will involve a combination of legal, health care, and financial tools to meet your goals and maximize your protection. To get started, register an upcoming seminar to learn more or call our office at 919-443-3035.


Disclaimer: This website and the information provided on this website is for general information purposes and should not be construed as specific legal, tax, accounting, or financial advice. Although efforts are made to keep information accurate and up to date, occasionally unintended errors and misprints may occur. We assume no responsibility or liability for any errors or omissions of the content of this site. It is important to do your own analysis before making any legal or investment decisions about your own personal circumstances. The ideas and strategies discussed herein should never be used without first assessing your own personal and financial situation and consulting with a legal or financial professional.

Jackie Bedard
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Attorney, Author, and Founder of Carolina Family Estate Planning