Should I include a Long Term Care Rider When I do my Life Insurance 1035 Exchange?

Life insurance and Long Term Care (LTC) insurance have typically been purchased as separate policies. However, many people elected not to purchase LTC insurance for two reasons:

• If you don't file a claim, premiums are typically lost.
• Many Insurance carriers unexpectedly raised premiums on existing policyholders.

Several life insurance carriers responded by creating a Long Term Care Rider where a portion of the death benefit can be used for long term care needs. If you decided to forgo a LTC stand-alone policy, this rider or hybrid policy may be worth considering. Some of the advantages include:

• If you don't file a LTC claim, all is not lost. The life insurance will be paid to your family at your death. Also, if you cancel the policy while you are still alive, you will receive the Cash Value, if available.
• One premium covers both life insurance and the LTC Rider.
• Premium guarantees may be available on some policies. This feature protects against the risk of future premium increases.

Some of the disadvantages include:

• Be careful. Riders differ at each insurance company. If you received a proposal that includes this rider, find out if it is a Chronic Illness or Long Term Care Rider. There are differences. The above video, as an example, describes a Chronic Illness Rider. Also, Definitions, the name of the rider and payout formulas can differ from carrier to carrier. Riders may differ and not be available in every state. Be sure to use an insurance consultant to walk you through the differences and various riders out on the market.
• The rider may have an additional charge associated with it.
• A Long Term Care Rider is not a substitute for LTC insurance, does not provide coverage on your spouse, does not have inflation adjustments and may require that the chronic illness be permanent. The life insurance has fees and charges associated with it and is typically higher in price than a LTC stand-alone policy.
• Exercising the rider will reduce both the death benefit and Cash Value. The reduction to death benefit can exceed the amount accelerated. Care should be taken to make sure that your life insurance needs continue to be met even if the rider pays out in full. There is no guarantee that the rider will cover the entire cost for all of the insured's long term care, as these vary with the needs of each insured.
• A life purchase should be based on the life policy, and not optional riders or features. The cost of a rider may exceed the actual benefit paid under the rider.