Sometimes, a policy's base benefits may not completely meet your needs. This is why most Long-Term Care Insurance companies offer extra benefits or other add-ons. These added benefits are called insurance riders.
LTC News was created by industry experts to help people better understand Long-Term Care Insurance. Our goal is to bridge information gaps so anyone can find care that works best for them.
In this article, we'll break down Long-Term Care Insurance riders. We'll discuss what riders are and the situations when it could help to add riders to Long-Term Care Insurance policies. We'll also cover common rider options.
What Is A Rider In Long-Term Care Insurance?
Insurance riders are extra benefits available to add to multiple types of insurance policies. In this article, we cover riders for Long-Term Care Insurance policies.
Policyholders use riders to customize their insurance policies to meet their needs. Each company and industry offers a different selection of riders.
These add-ons add an extra cost to premiums. The cost of riders varies by company. Each rider has a cost that increases the base cost of a policy by a specific percentage. Costs vary by company and depend on the cost of the base policy. Typically, the more expensive a base policy, the pricer riders will be.
RELATED: How Much Does Long-Term Care Insurance Cost?
How Do Riders Work In Long-Term Care Insurance?
In Long-Term Care Insurance, individuals can only add riders when they first apply for coverage. There's also a short grace period after an application's approval. During this grace period, policyholders are typically free to add riders.
Grace periods usually vary from 30 to 60 days, depending on the company. After the period ends, policyholders can't add any additional benefits or riders to their policies.
Riders modify the benefits of a policy by adding specific features or benefits. Riders function similarly to regular Long-Term Care Insurance benefits; the only difference is riders are not built into the base policy.
Common Long-Term Care Insurance Rider Options
Long-Term Care Insurance companies offer a variety of riders. We'll discuss common Long-Term Care Insurance riders and add-on options below:
- Inflation benefits
- Shared care benefits
- Dual waiver of premium
- Survivorship benefits
- Waiver of the elimination period for home care
- Return of premium
- Nonforfeiture benefits
- Restoration of benefits
- Cash benefits
Inflation Benefits
Inflation benefits riders increase the regular benefits within a policy by a certain percentage each year. This helps offset economic inflation and the increasing costs of long-term health care.
The law requires all companies to offer at least 5% compound inflation on every tax-qualified Long-Term Care Insurance policy. Many insurance companies also offer inflation benefits under 5%. Some companies include both compound and simple inflation options.
Most people choose a compound inflation rate of 3%, but anywhere between 1% and 5% are also popular choices when available.
Time Limits For Inflation Riders
Inflation benefits usually last for life. However, some companies allow policyholders to put a time limit on their benefits. Time limits typically range from 5 to 20 years.
Time limits can help reduce the cost of premiums. In some cases, it may make sense for older individuals to use a time limit on inflation benefits, depending on their expected lifespan.
Cost of Inflation Riders
Age, inflation percentage, and the cost of the base policy can all impact the cost of the policy. Choosing a smaller inflation percentage will reduce the cost of the premium.
For example, 5% compound inflation can cost twice as much as 3% compound inflation. By choosing smaller inflation percentages, you can get inflation benefits at lower costs.
The cost of long-term health care generally goes up with labor costs. Inflation benefits can significantly address the impact of rising long-term health care costs.
The LTC News Cost of Care Calculator can show you the current and future costs of long-term health care services in your area.
Shared Care Benefits
Shared care benefits allow couples to share Long-Term Care Insurance benefits. This rider may also be referred to as shared spousal benefits.
Shared care riders aren't just for married couples or legal partnerships. Individuals living together in a committed relationship for over two years and sharing expenses may also qualify for shared care benefits. Each company has different rules, but many are flexible.
Shared care is the second most common Long-Term Care Insurance rider. There are two types of shared care riders to choose from.
The first type of shared care rider ties a couple's benefits together. If one partner exhausts all their benefits, they can access their partner's benefits.
If one of the partners passes away, the surviving partner can access 100% of their remaining joint benefits.
The second type of shared care rider creates a third pool of money, which both partners can access.
With this rider, individuals keep their own policies as usual. They can continue care with the third pool of money if they exhaust their own benefits.
The third pool of money option is more expensive than combining policy benefits. It costs more because it creates more overall benefits for the couple.
Dual Waiver of Premium
One of the best parts about Long-Term Care Insurance is that policyholders don't have to pay their premiums when they are receiving benefits from their policy. Policyholders' premiums are waived until the claim ends, and they no longer receive benefits for that issue.
The dual waiver of premium rider waives the policyholder's partner's premium when they go on claim. This means when one partner receives long-term care benefits, neither partner has to pay their premium. Premiums resume if the individual recovers and no longer needs care.
Like shared care riders, policyholders do not have to be legally married to qualify for the dual waiver of premium rider. Individuals in recognized partnerships (as defined and described above) can apply for this rider.
Survivorship Benefits
Survivorship benefits riders waive premiums for couples when one spouse passes away if neither spouse has received Long-Term Care Insurance benefits in 10 years or more.
If one partner passes away, this rider waives the surviving partner's premium for life. The only requirement is neither partner can have gone on claim 10 or more years before their death.
Survivorship riders are more prevalent among buyers in their 40s and 50s. These buyers have a better chance of going 10 or more years without filing a claim.
Similarly, it may make sense for older individuals to avoid this rider as they're at a higher risk of receiving benefits or passing away in the 10-year period. This risk can make it difficult for older individuals to benefit from this rider. And since this rider adds an expense to the premium, it may not be the most cost-effective option.
Waiver of Elimination Period for Home Care
The waiver of elimination period rider waives the waiting period for in-home care.
Every Long-Term Care Insurance policy comes with an elimination period. Elimination periods are one-time waiting periods that begin when you file your first claim. Think of these as deductibles based on days.
You can choose the length of your elimination period. These periods can last anywhere from zero days to over a year. The shorter the elimination period, the pricier the policy. A majority of people choose 90-day elimination riders since Medicare and health insurance policies can cover up to 100 days of skilled care.
However, in-home care is primarily custodial (help with daily living activities or supervision due to dementia). Custodial care is not covered at all by health insurance or Medicare. This means policyholders would pay for the care out of pocket for those 90 days - unless they add this rider.
Any days you receive in-home care with the waiver count towards the elimination period. In other words, this rider lets you receive Long-Term Care Insurance benefits during your elimination period.
It's important to note that the waiver of elimination period rider for home care only waives the waiting period for in-home care. If you need custodial care in a long-term care facility during this time, neither Medicare nor health insurance will cover the costs. You will end up paying for the facility care out-of-pocket until the regular elimination period ends.
Return of Premium
The return of premium rider returns paid out premiums to beneficiaries when a policyholder passes away.
There are a few different types of return of premium riders:
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Under 65
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Premiums minus claims
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All premiums
We'll discuss each of these in the sections below.
Premiums Minus Claims Under 65
The first type of return of premium rider only applies to some policyholders. This type returns money to beneficiaries if the policyholder passes away before age 65. If the policyholder passes away at or above age 65, their premiums will not be returned.
This rider will return every paid premium minus any money paid out towards care. It's the most affordable type of return of premium rider.
Premiums Minus Claims At Any Age
The second type returns all premiums minus any money paid out during claims after the policyholder's death at any age. This version of the rider costs more than the previous type of return of premium rider.
All Premiums
The third type returns all premiums regardless of age or money paid out during claims. The policyholder's estate or beneficiary will receive all the premiums paid during the policyholder's lifetime and any benefits paid out by the policy. This option is the most expensive of the three.
Nonforfeiture Benefits
The nonforfeiture rider ensures that if a policyholder cannot continue to pay for their policy - for any reason in the future - the money they paid into the policy could be used to protect them in the future.
With this rider, policyholders can continue receiving Long-Term Care Insurance benefits based on the amount of premiums they've already paid. This way, policyholders can still receive reduced benefits and coverage while still getting the most out of the money they paid into the policy.
Very few people lapse their Long-Term Care Insurance policies. Most insurance companies allow you to reduce your benefits and premium - in the future. The need for this rider is questionable, but it's available for anyone concerned about not being able to pay their premium in the future.
Contingent Nonforfeiture Benefits
The contingent nonforfeiture benefit is a rider required by federal law to be included in every Long-Term Care Insurance policy at no extra cost. This rider lets you continue coverage on a reduced basis if your insurance company gets approval to raise your premium over a certain percentage.
Contingent nonforfeiture reduces your benefits based on the total premiums you've paid. If you experience a substantial premium increase, you have the right to stop paying premiums and convert your policy to paid-up status.
Paid-up status means premiums have been paid in full for a policy. As a result, your paid-up policy will have a maximum benefit of at least as much as you've already paid in premiums over your lifetime.
If your insurance company does get approved to raise your premium, it might be in your best interest to reduce your benefits to keep your premium the same instead of using the contingent nonforfeiture benefit. In many cases, reducing benefits may give you more benefits and flexibility than contingent nonforfeiture benefits.
It's also very unlikely that your premium will increase if your policy was purchased after recent regulations. For more information, read our article on premium increases and how premiums are regulated for stability.
Restoration of Benefits
The restoration of benefits rider restores benefits to individuals who recover and no longer need care for a specific period of time. Most companies set this period to 180 days, although this can vary.
With this rider, companies restore all the benefit money paid towards your care. The money will be restored to your benefit account as if it were never used in the first place. Companies will not return premiums, only the benefits paid out.
Cash Benefits
Cash benefit riders add benefits in the form of cash. Policyholders are free to use their cash benefits as they please. Cash benefits are provided either in addition to the regular benefits or by completely replacing the standard benefits with cash benefits.
Cash benefits can be helpful for many reasons. Individuals can use cash benefits to pay for anything. In many cases, individuals use them to pay informal caregivers.
Informal caregivers are friends, family members, or other caregivers who provide care. Informal caregivers usually don't have formal training, certifications, or care licenses.
The law requires legally recognized caregivers to be licensed or certified. This means if your caregiver isn't licensed, then legally, insurance companies cannot compensate them.
This means with standard policies, your informal caregiver may not receive payment for their services. But this is the beauty of this rider; cash benefits allow policyholders to pay their friends and family for the informal care they provide.
Individuals also often spend their cash benefits on household duties or chores. For example, some older folks may be unable to shovel snow or mow their lawns. Others may want someone to take care of their dog or cat.
Are Long-Term Care Insurance Riders A Good Fit For You?
Long-Term Care Insurance riders add benefits and features to policies at an extra cost. There are many different types of riders, as we've discussed above.
Depending on your situation, you may want to add Long-Term Care Insurance riders to your policy. For example, couples can benefit from shared spousal benefits.
Every tax-qualified Long-Term Care Insurance policy company offers some sort of inflation rider. Inflation benefits are necessary for the partnership program, and they offset the rising costs of care for the future when care is needed. Inflation riders are especially important for those who apply in their 50s.
In some cases, buying larger benefits may make more sense than buying more riders. However, riders like inflation and spousal benefits can be valuable to many policyholders.
LTC News's goal is to provide up-to-date resources on Long-Term Care Insurance. We've created a collection of guides and articles to help you navigate Long-Term Care Insurance.
As you continue to learn about Long-Term Care Insurance, here are a few more articles that may be able to help:
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When Is The Best Time To Apply For Long-Term Care Insurance? - Buying Long-Term Care Insurance at the right time can reduce your premiums and get you better coverage. This article breaks down the best time to buy coverage.
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Will Long-Term Care Insurance Premiums Increase? - Budgeting is everything when it comes to buying insurance. The good news is, Long-Term Care Insurance premiums are relatively stable. This article explains how premiums are priced and why you shouldn't worry about yours increasing.