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Marc A. Hebert's Money Sense: Keys to understanding long-term care and life insurance riders

September 22. 2018 6:00PM

Life insurance has a place in the financial lives of many people. For example, income replacement in the case of a loss of a spouse is important for financial security.

Long-term care insurance may also have a place. This insurance will provide protection against costly long-term care needs.

If you feel that you need both types of coverage, then perhaps a life insurance policy that combines a death and long-term care benefit could be the right approach for you.

Just how does such a policy work? Some life insurance companies will offer a product with a long-term care rider available for an additional charge. There is a death benefit that can also be used to pay for long-term care expenses. This means that either the policy will be used to pay for your long-term care expenses or your beneficiaries will receive the insurance proceeds at your death. The appeal is that someone will benefit from the premiums you pay for having the policy.

Long-term care riders can take the form of an accelerated benefits rider or an extension of benefits rider. The accelerated benefits rider makes it possible to access your death benefit to pay for long-term care expenses. The death benefit is reduced each time an amount is paid for long-term care. Eventually there is no more available death benefit to use or pay to beneficiaries upon your death. Make sure to check out the tax consequences when considering this type of policy, as accelerating the death benefit can impact your tax policy.

The extension of benefits rider increases your long-term care coverage beyond your death benefit. This can take the form of increasing the total amount available for long-term care over the base amount (the death benefit remains the same) or extends the number of months over which long-term care benefits can be paid. Either way, the payment of long-term care benefits reduces the available death benefit of the policy.

Accessing the long-term care portion of the policy is similar to the requirements of a standalone long-term care policy. You must be unable to perform some of the activities of daily living (bathing, dressing, eating, getting in or out of a bed or chair, toilet use or maintaining continence) or suffer from a severe cognitive impairment.

There is usually an elimination period. Typically, this is a specific number of days over which you pay the costs out of your own pocket before benefits kick in.

To obtain a policy, you will have to answer some health-related questions and submit to a physical examination before a policy will be issued.

How do you decide if a combination policy is right for you? First, do you need both life insurance and long-term care insurance? If so, how much do you need and for how long? Life insurance needs may change as people age. Sometimes coverage isn't even necessary anymore. If you have a combination policy and surrender it, you will lose the long-term care benefit.

Is the long-term care part of the policy adequate? Be sure to check out the features of the long-term care rider. Does it cover assisted living or home health care? Is there an inflation adjustment? Do the tax benefits of a qualified long-term care policy apply to the long-term care portion of the combination policy?

Compare the costs of a standalone policy versus a combination policy as they vary widely.

As can been seen, there are some considerations to the combination - do your homework to make certain it is right for you. Understand the policy. Check the insurance companies' financial strength rating before you buy. Speak with an adviser who understands these policies before making your purchase.

Marc A. Hebert, MS, CFP, is a senior member and president of the wealth management and financial planning firm The Harbor Group of Bedford. Email questions to Marc at Your question and his response might appear in a future column.


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