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Easy (LTC insurance) Riders

by smeneshi - Nov 08, 2014

1) Inflation Protection

An inflation protection rider makes sure that your LTC benefits grow in value every year. The inflation protection rider is very important because your benefits won’t be eaten away by the invisible force of price inflation. Of course, if an insurance company has to pay more benefits as time goes by, then you can bet that your premium will be higher also. That’s why you’ll notice policies with inflation protection cost about twice what the ones that don’t have it charge. Below are the 4 types of inflation protection riders that are commonly offered by insurance companies:

  1. Compound Inflation Protection: Your LTC benefit will go up every year at a fixed rate of usually 3-5% when you have this type of inflation protection.
  2. Consumer Price Index (CPI) Inflation Protection: You’ve probably already figured out that your benefits grow at the same pace as the Consumer Price Index when you have this type of inflation protection. You have to be careful here because the CPI is notorious for understating what many experts, myself included, think the real rate of price inflation is. Either way, something is better than nothing and CPI inflation protection will you give you some peace of mind.
  3. Simple Inflation Protection: This type of inflation protection only bumps up your benefit every year by a set percentage, usually around 3-5% of your first year’s benefit. This is similar to the cost of living adjustment (COLA) that so many of you in the public sector are used to getting. That is, usually your pension goes up every year, but only around 3% of your initial first year payout.
  4. Guaranteed Purchase Option (GPO): This option actually lets you decide if you want to raise your coverage. If you do, your benefits will be bumped up usually 3-5%. Of course, every time you raise your benefits, you will see your premiums go up in cost also because of the added coverage and older age.

 

2) Return of Premium

Depending on what triggers the return of premium rider, you or your surviving spouse will get a return of all or a part of the premiums that you paid. Triggering events can be:

  • Death
  • Reaching a certain age
  • Number of years your policy has been in-force
    • g. the triggering event may be the 10th anniversary of your premium payments
  • Combination of death and years in-force
    • g. the triggering event can read something like “when the policyholder dies before age 65 after paying more than 10 years of premiums”

 

3) Non-Forfeiture of Premium

If your policy lapses or you cancel it, the insurance company will treat all of your premiums as a “paid up” policy, with your pool of benefits equal to what you paid in premiums. This way, if your policy does lapse, at least you haven’t just thrown your money away and you have something that can offset long-term care costs. Since so few people actually cancel coverage, it’s usually better not to pay extra for this rider.

 

4) Spouse Shared Care

Instead of buying two separate amounts of LTC benefits, this rider combines you and your spouse’s resources into a single pool which allows either spouse to dip into the total benefit amount. In other words, instead of having 2 policies each with $200,000 of insurance benefits available, you still have 2 policies but if you need more than $200,000 of benefits, you can dip into your spouse’s pool, so to speak, and one person can potentially use $400,000 total. If your spouse dies, you can use the entire $400,000 of coverage.

 

4) Guaranteed Insurability

With guaranteed insurability, you can buy more LTC insurance down the road without having to go through the underwriting process again. The huge benefit here is if your health slips, the insurance company will still let you buy an extra amount of coverage (within limits, of course).

5) Restoration of Benefits: If you have a benefit amount to dip into of $200,000 and you use up $30,000 of it, you’re left with $170,000. If after some time of not needing any LTC (usually 6 months) then your total benefit amount of $200,000 is fully restored.

6) Spouse Survivorship

With the survivorship rider, let’s say you pass away before your spouse. What happens is your surviving spouse doesn’t have to pay LTC premiums any more.  In a way, this is sort of like a life insurance policy payout but instead of cash being paid to your spouse, he or she has their premium “paid up.”

 

7) Waiver of Elimination Period

This rider ensures that you will start collecting benefits immediately instead of having to foot the bill for 1, 2, 3 or more months of expensive long-term care. Even though it’s true nobody likes paying the higher premiums for this rider, I can safely say that everyone is grateful when benefits start getting paid from day one.

 

 8) Waiver of Premium

Once you start collecting LTC benefits, your premiums will be waived during the time you need care.

 

9) Limited Payment

This rider allows you to shorten the time that you pay premiums, so depending on your wallet, you can opt for a single-pay policy, a policy that is paid up within 20 years, or somewhere in between. The time that you fully pay up your policy really depends on you and what the insurance company is offering.

 

10) Life insurance with an LTC rider

Even though this is not an LTC insurance rider, it deserves an honorable mention. A long-term care rider can be attached to a life insurance policy so that you and your family can possibly benefit from the best of both worlds. The way it works is you’ll have benefits paid to you for a stay in a licensed nursing home and the amount of benefits are usually based on a percentage of the life insurance amount. So, a $100,000 policy with a 2% benefit would give you an LTC payout of $2,000 a month. A monthly benefit for home health care, when covered under the rider, is usually half of the nursing home benefit.

Keep in mind that if you use this type of life insurance product, whatever amount of LTC benefits that were paid out will reduce the life insurance payout.

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