Life Insurance Riders for Retirement: Long-Term Care and Chronic Illness

Did you know that the average couple that retires at age 65 today should expect to spend an average of $240,000 for out-of-pocket medical expenses during their retirement years? This number does not even include potential long-term care costs.

There are steps that can be taken to help with these costs when initially looking for term life insurance rates for seniors. There are two life insurance riders that can specifically help with medical expenses in retirement: a long-term care rider and a chronic illness rider. A rider is an add-on feature you purchase to enhance your life insurance policy. In this post, we will explain what long-term care is, what long-term care and chronic illness riders do and their differences.

What is Long-Term Care?

Long-term care is a range of services and supports someone may need to meet their personal care needs, and this care can get expensive. Most long-term care is not necessarily medical care, but assistance with activities of daily living (ADLs).

There are six basic ADLs:

• Eating
• Bathing
• Dressing
• Toileting
• Transferring (walking)
• Continence

Long-term care can also include assistance with everyday tasks which include:

• Housework
• Managing money
• Taking medication
• Preparing and cleaning up after meals
• Shopping
• Using the telephone or other communication devices
• Caring for pets
• Responding to emergency alerts (e.g. fire alarms)

Some of this care is nearly around-the-clock support, so how are these services paid for? There are four main financing options that can be used for long-term care services:

• Self-funding
• Charity
• Government programs
• Long-term care insurance

Self-funding and charity are pretty self-explanatory, so let’s just talk through the other two options.

Government Programs

Long-term care services are primarily paid for through government programs which are both state and federally funded via Medicare and Medicaid. Medicaid was formed specifically to finance long-term care, while Medicare was not.

Medicare does not pay for care services provided specifically for ADLs or everyday tasks, but it does cover some post-acute care services (e.g. rehabilitation facilities and home health agencies), though with very limited coverage and strict eligibility requirements.

Medicaid is the largest government source for long-term care financing—31 percent of the total Medicaid budget goes to LTC. Because Medicaid is a joint federal and state program, eligibility requirements may vary by state. General requirements include low-income and asset level tests. In order for some individuals to qualify, they may have to first spend down a percentage of their assets.

Long-Term Care Insurance

With a long-term care insurance policy, you pay a premium and receive benefits when qualified expenses occur. If the insured person is unable to perform any two of the six ADLs, or if they experience a severe cognitive impairment, they will qualify for benefits. Additionally, the condition must be expected to affect the insured for at least 90 days.

As beneficial as LTC insurance sounds, premiums have seen significant increases since 2000. Many insurers have pulled out of the LTC insurance business. Several factors are impacting the LTC market. These influences include:

• Use-it-or-lose-it nature: consumers are more hesitant about paying for an expensive product they may not use.
• Rising life expectancy and health care costs: consumers are living longer and more likely to use long-term care.
• Long-term care costs are rising along with average medical care expenses: the average annualized increase of U.S. nursing home costs from 1994 to 2011 is 3.95 percent.
• Prolonged low interest rate environment: insurers need a 10 to 15 percent increase in premiums to offset every 1 percent decline in long-term interest rates. Some insurers opt to drop benefits to keep the same premiums.

Because of these market pressures, insurance companies began thinking of new ways to provide long-term care protection. The development of long-term care riders and chronic illness riders became the solution to this marketplace need.

Chronic Illness, Long-Term Care Riders, and the Best Term Life Insurance Rates for Seniors

Typically how life insurance works is that you buy a certain amount of coverage and when you die your beneficiaries are paid a check in that amount. With these two riders, the insureds can receive living benefits if a situation occurs in which they are in need of extra funds while still alive. This scenario makes finding the best term life insurance rates for seniors well worth the time and effort.

Comparing Chronic Illness and Long-Term Care Riders
Feature	Chronic Illness Rider	LTC Rider
Diagnosis	Severe cognitive impairment or unable to perform 2+ ADLs	Severe cognitive impairment or unable to perform 2+ ADLs
Duration of Condition	At least 90 days. Most riders require the condition to be permanent, but some do not.	At least 90 days.
Payment Types	Indemnity	Indemnity or Reimbursement
Benefit Payments	Tax favored if meet IRS per diem requirements (Current maximum of $340 per day for 2016)	Tax favored if meet IRS per diem requirements (Current maximum of $340 per day for 2016) Also can be tax favored above stated per diem limits if proof is provided that the dollars were spent on qualified services related to the condition.
Other Features	May waive all policy monthly deductions while on claim	LTC riders are required to have an extension of benefit provision which would allow for benefits to still be paid even if the policy had lapsed if the insured can prove he or she would have qualified for benefits prior to the date their policy was terminated.

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