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Choosing among long-term care insurance riders

Most long-term care insurance policies cover some combination of nursing home care, home health care, assisted living and/or adult day care.

insurance for nursing home care

One way these policies provide that protection 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.

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.

Jesse Slome, executive director for the American Association for Long-Term Care Insurance, an independent nonprofit organization, believes that long-term care policies should be "simple" and "affordable." Slome adds that certain riders -- such as those that promise to refund your premium -- make policies complicated and expensive. Still, when you buy a long-term care insurance policy, you will want to review all your rider choices. Here are some that may be available from your long-term care insurer.

Spousal benefit rider

Slome says one of the "most significant riders" is the spousal benefit rider.

"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 says adding a spousal rider to your long-term care insurance 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

Nearly 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). 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 long-term care insurance 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. 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:

  • 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.
  • A "shortened benefit period" rider. This guarantees your benefit for a specific amount of time based on how much you paid into the policy.

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 a long-term care insurance 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 long-term care insurance 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.

Fewer options in long-term care insurance

Standalone long-term care insurance isn't nearly as popular as a decade ago. In 2016, fewer than 100,000 people purchased LTC insurance.

People are instead going with a combined life insurance policy with long-term care benefits. In fact, twice the number of people choose combination plans now than a standalone policy.

In addition to fewer people interested in standalone policies, there are also fewer companies offering them. Milliman Inc. reported that 17 carriers sold traditional long-term care policies in 2016 with Northwestern Mutual and Mutual of Omaha accounting for about half of the sales.

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