Most long-term care insurance is purchased as a stand-alone policy, but some companies that sell life insurance now offer riders that provide benefits if you need long-term care.

In some states, insurers can combine traditional products like annuities and life insurance with other mechanisms designed to cover some or all of the cost of long-term care. This paves the way for insurers to offer life insurance products with "living benefits" that will help you pay expenses while you're still here.

Fortunately, most states now permit the sale of long term care hybrid products. (And it's not just plain vanilla life insurance policies that offer long term care riders. Some variable annuities now offer long term care riders.) Riders for long term care are appearing on many types of policies, including disability and certain types of term insurance.

You're probably familiar with the typical whole life or universal life insurance policy that offers a death benefit and a buildup in cash value. There are essentially two kinds of long-term care riders that are added to cash value life insurance: acceleration and extension riders.

The acceleration rider lets you take "an advance" on your death benefit if long-term care becomes necessary. The rider makes it possible to accelerate payment of the death benefit in this situation. The death benefit in your life insurance policy is reduced by the amount used for long-term care expenses, along with a small service charge. If you need long-term care for a lengthy period of time, the death benefit will eventually be depleted. This same rider can be used when the insured has a terminal illness, which may require immediate payment of massive medical bills. Because accelerating the death benefit can have unfavorable tax consequences, consult with your tax advisor before exercising one.

An extension rider increases your long-term care coverage beyond your death benefit. In fact, in certain situations, it can even allow you to keep drawing money for long-term care expenses, even after the death benefit amount in the life insurance policy is exhausted.

These riders differ from company to company. With some, the policyholder collects a percentage of the death benefit each month. With others, long-term care expenses are reimbursed as they are incurred by you, up to the limit set by your rider.

Before you can use any of these riders, though, something bad has to happen. Depending upon the rider you bought, needing home health care may entitle you to tap into the policy. Another rider may require you to be chronically ill and unable to perform at least two of the activities of daily living or suffer from a cognitive impairment such as Alzheimer's disease.

Taking out the calculator

An acceleration rider may be relatively inexpensive or free-of-charge because the insurance company is simply paying the death benefit early. It may, however, charge you interest if your benefit is utilized.

One important question is whether any rider attached to a life insurance policy is an adequate substitute for long-term care insurance. If you do the math, you'll see that a long-term care rider on a life insurance policy won't necessarily cover all of your long term care expenses. Let's look at a $100,000 life insurance policy with a rider that pays a maximum of two percent of the death benefit each month for long-term care. Assuming you've met the eligibility requirements, you can begin tapping the policy for $2,000 each month. Since a stay in a nursing home will cost $40,000 per year and much more in many areas, that $24,000 may quickly prove inadequate. Furthermore, you're reducing the death benefit that will be paid to your beneficiaries.

While life insurance policies with long-term care riders offer a possible solution to the long-term care dilemma, it may only be viable for mid- to upper-income clients because of the high face amounts of the policies they purchase. Smaller policies often to not contain an accelerated benefit rider and would be able to offer little funding when limited to 2 percent of a small face amount.

Stand-alone long-term care policies, rather than coverage that's added on to a life insurance policy, often provide better and more versatile coverage, especially when you're trying to deal with the rising level of inflation and the rising cost of care. A cost-effective solution would be to buy term life when you're young to cover expenses like college educations and income replacement and then add a long term care policy when you're in your 50s.

The risk of needing long-term care must be addressed at a relatively young age. As with most other types of insurance, the older you are, the more long-term care coverage costs. In addition, as you get older, the probability of injury or disease affecting your health rises. This increased potential to be sick or injured — called morbidity by the insurance industry — is the basis for calculations of premiums for long-term care. For best results, consult with an insurance professional who will tailor a solution to meet your personal situation.