Life insurance can also cover long-term care (LTC) expenses. Most permanent life insurance plans above $25,000 in coverage offer a benefit option to cover LTC expenses. However coverage forks down two separate roads, so choose careful which one one to take.
These accelerated benefit riders come in two types: one is called a long-term care (LTC) rider, and the other is called a chronic illness rider. The LTC rider costs extra premium; most chronic care riders have no upfront charge. Charges will only occur if the rider is elected. So why pay extra for the LTC rider over at chronic illness rider? What exactly are the differences between a chronic illness rider and a long-term care rider?
Long-term care riders: unable to perform two out of six activities of daily living or cognitive impairment pays temporary and permanent claims. “Qualified Long Term Care Insurance Contracts.” IRC 7702B; and also IRC101(g).
Chronic Illness riders: unable to perform two out of six activities of daily living or cognitive impairment; trigger: the condition must be expected to be permanent in order to qualify. IRC 101(g)
With temporary conditions requiring LTC, and a conditions in a gray area as to its outcome being temporary or permanent, the chronic illness rider would not meet the qualification threshold.
The $64 question then becomes: how often are conditions requiring long-term care temporary? How often would a chronic illness rider leave the insured unqualified to draw a benefit? From the research I’ve seen, about one third of the time.
The need for long-term care breaks down into a few health conditions: dementia and cognitive impairment, stroke, arthritis, cancer and accident or injury
Dementia and Cognitive Impairment: both riders suitable
At some stage dementia would be identifiable via a cognitive test and a doctor would certify as permanent. Not in any way a temporary or recoverable condition.
Stroke Advantage: long-term care rider
The leading reason to pay extra for a LTC rider. So many moderate to severe strokes would not be judged expected to be permanent, so a chronic illness rider could not be activated.
“Current statistics for stroke survival rates are:
10 percent of stroke victims recover almost completely.
25 percent of stroke victims recover with minor impairments.
40 percent of stroke victims experience moderate to severe impairments requiring special care.
10 percent of stroke victims require care in a nursing home or other long-term care facility.
15 percent die shortly after the stroke”
Arthritis both riders suitable
temporary vs. permanent hard to discern statistically statistics If the arthritis was that severe to cause someone to be unable to perform 2 out the 6 activities of daily living, I doubt it would be deemed a recoverable condition.
Cancer Both riders limited suitability, some advantage to the LTC rider, though 90 day elimination period would limit the LTC rider’s usefulness.
For end stage cancer patient, a life insurance terminal illness accelerated benefit rider which is included with nearly all life plans would be available regardless.
Injury/Accident Advantage: long-term care rider, but a 90 elimination period limited its effectiveness
Mostly LTC situations are temporary. note: falls among older adults
Another major factor in the decision should be that long term care riders are a reimbursement benefit. Chronic illness riders are indemnity benefits, i.e. cash benefits. The reimbursement method, for qualfied LTC expenses, is inherently more restrictive.
Research: CBO study (pdf.)