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Choosing among long-term care insurance riders

Most long-term care (LTC) insurance policies cover some combination of nursing home care, home health care, assisted living and/or adult day care. With so many long-term care insurance policies to choose from, insurance companies attempt to distinguish themselves and their products from one another.

One strategy is to offer policies with a laundry list of special features, discounts, riders and expanded benefits. When you're shopping around for long-term care insurance, compare the same level of coverage among different policies. You'll find that isn't always easy because long-term care benefits differ enormously from company to company. Complicating matters is that some companies include certain benefits in a basic policy, while others add them through riders at an extra cost.

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A rider can add valuable benefits, but you must determine which riders are worth the extra cost. Some riders add to the cost without a corresponding increase in benefits.

"A lot of those bells and whistles were made available 10 to 20 years ago," says Jesse Slome, executive director for the American Association for Long-Term Care Insurance, an independent non-profit organization, in an interview on Sept. 11, 2009. "But very few people choose them or find them attractive because they are very expensive."

Slome believes that long-term care policies should be "simple" and "affordable" and that certain riders — such as those that promise to return (refund) your premium — make policies complicated and expensive. Still, when you buy an LTC policy, you will want to review all your rider choices. Here are some that may be available from your LTC insurer.

Spousal benefit rider

"One of the most significant riders worth considering is the spousal benefit rider," says Slome. "This enables each spouse to tap the other's pool of benefits. As a result, each individual could purchase, say, a three-year plan of protection which would be significantly less expensive than a five-year benefit."

Slome adds that adding a spousal rider to your LTC policy might increase the cost about 15 percent, but it would give both policyholders access to five or six years of benefits.

Home health care rider

This used to be a popular rider. Today, almost all long-term care insurance policies have some form of home health care included in a basic policy.

The most common long-term care policies are those termed "tax-qualified." That means they follow certain consumer-protection guidelines set by the National Association of Insurance Commissioners and the Health Insurance Portability and Accountability Act (HIPAA). Robert Zirkelbach, spokesperson for America's Health Insurance Plans (AHIP), said in an interview in September 2009 that roughly 95 percent of all LTC policies are tax-qualified. That also means that when you use a benefit, it is not considered taxable income. In the past, some insurers offered home health care as a rider. Now, all tax-qualified basic LTC policies cover some home health care. If you are among those rare few with a non-tax-qualified policy, ask your insurance agent if you have home health care coverage.

Nonforfeiture benefit rider

State insurance regulations require that all tax-qualified long-term care insurers offer nonforfeiture benefit riders. Zirkelbach says that while insurers are required to offer them, they are not purchased by many consumers.

As the name suggests, these riders assure that you won't forfeit all of your benefits even if you stop paying premiums. There are two types of common nonforfeiture riders, Zirkelbach says. A cash-back option (also referred to as a "return of premium" rider, or "refund of premium" rider) guarantees to refund your premium to you or your beneficiary if your policy lapses due to your death or if you stopped payments. Or you can choose to buy a "shortened benefit period" rider, he says. This guarantees your benefit for a specific amount of time based on how much you paid into the policy, Zirkelbach says.

According to the "Guide to Long-Term Care Insurance," 2004, by America's Health Insurance Plans, a nonforfeiture benefit rider can add 20 to 100 percent to a policy's cost. Shop around for a policy in your state that has the benefits you want at a cost you can afford.

Return-of-premium (refund of premium) upon death rider

Return-of-premium (refund of premium) riders for long-term care are not available from all companies nor in every state and are only paid upon death. They are considered a form of nonforfeiture benefit for an LTC policy. Your estate or a designated beneficiary will be entitled to the return of some or all of your premiums if the policy isn't used during your lifetime. There are two types of common return-of-premium (refund of premium) upon death benefits: One can be built into a policy at a minimal cost and the other is added as a rider.

The built-in return of premium (refund of premium) was originally designed to attract people in their 40s and 50s, Slome says. If the policyholder dies before age 65 or 70, premiums paid into the policy are returned to the policyholder's beneficiary or estate.

The return-of-premium rider (refund of premium) is designed for workers with a business. With this rider, the business can pay the premium and receive a tax deduction in the amount of the premium, explains Slome. "There usually isn't an age requirement. The policy must be in place for a long time, usually 10 years, in order to receive the benefit," he says.

Inflation rider

No matter which long-term care policy you buy, an inflation rider is an important option. These riders help ensure that your LTC benefits keep pace with the escalating cost of health care. Because this coverage is so important, insurance regulators in many states require any purchaser of a long-term care policy to specifically reject the inflation rider if they don't want it.

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