What Alternatives To Long-Term Care Riders Are Available?
Alternatives to long-term care riders attached to cash value life insurance plans are available and should be considered. If you are not going to use a long-term care rider attached to a cash value life insurance, you’re likely going to use one of the three other major ways to cover long-term care costs.
Independent Long Term Care Insurance
Once extremely popular with aging adults, the policies promised to cover the ever-increasing costs of nursing home care in exchange for a monthly premium payment. The policies resemble term life insurance products in many respects. The plans do not build cash value and never feature an investment component, so you will need to pay premiums as long as the plans are in place. These long-term care insurance policies also can be costly, confusing, and hard to get unless you are in top physical condition. If the plan’s coverage lapses for any reason, like nonpayment of a premium, all of the premium payments are lost, and the insured person is left with nothing.
The biggest disadvantage of independent long-term care insurance policies is found in the unpredictable nature of premium hikes. Unlike level-term life insurance, monthly premiums can and often do change dramatically. These policies’ drawbacks tend to outweigh the advantages, and most people are better served considering an alternative approach.
Annuity and Life Insurance Bundles
The second approach to covering long-term care costs is to use a life insurance and annuity bundle. Coupling life insurance policies with fixed or “life” annuities are an effective way to ensure that long-term care expenses are covered in a way that does not draw down the inheritance of your loved ones.
Annuities operate as contracts that bind an insurance company to make you steady payments in exchange for a lump-sum payment or a series of payments you’ve made to them over time. These plans are growing in popularity because the life insurance and annuity bundle allow you to address retirement planning concerns and long-term care funding in a streamlined product.
The tax advantages associated with annuities and cash value life insurance are desirable to high-net-worth individuals concerned about estate taxes and probate fees. Couples with more modest means should still consider this strategy because both annuities and life insurance products do not typically interfere with Medicaid eligibility.
Accelerated Death Benefit Riders
Accelerated death benefit riders are attached to whole life or universal insurance products. The riders are generally offered free of charge by insurance companies. They permit insured parties to fund extended nursing homes or residential, skilled nursing by allowing funds to be drawn away from the plan’s cash value to pay for medical expenses. Because these withdraws diminish the insurance policy’s cash value, beneficiaries can expect to see smaller payouts and lower tax-advantaged transfers at the time of their death.
Speak to your insurance broker if you are seriously considering using an accelerated death benefit rider and consider that a supplemental insurance product may be necessary to maintain your loved one’s standard of living with one of these plans.