Paying for Long-Term Care: Rider vs Life Settlement
Americans are aging and the baby boomer generation is on deck to become the next whole generation to surpass the age of 65 by 2030.
In fact, according to the United States Census Bureau, by 2030 all baby boomers – those of us born between 1946 (just after the end of World War II) and 1964 – will all be at least 65 years old, with the oldest boomers (those born in 1946) celebrating their 84th birthdays.
We’re talking about a whopping 76 million people in the United States alone. This is a generation born into the widespread optimism that permeated much of the free world after the end of World War II and the substantial economic boom that followed. It’s also a generation that could use some good information about paying for all those golden years ahead.
Baby boomers are turning 65 at a pace of approximately ten thousand a day and data predicts that seven out of ten will need some form of long-term care. Further, four out of ten boomers will need care in an assisted living or nursing facility. However, it’s important to realize that currently, standard Medicare does not cover long-term care and the national average cost of staying in an assisted living facility already exceeds $4,000 a month, with peaks of $9,000 or more in certain areas.
Given all this, it could be very helpful to know about some of the less obvious ways that people finance their longevity. Here are two options you may not know you had to pay for those long-term care expenses.
Long Term Care Riders
Your permanent life insurance policy (that’s the whole life or universal life insurance policy you already own) may come with something called a long-term care rider. If it doesn’t, you may be able to add this coverage to your existing life insurance policy, even after issuance. If your policy includes a long-term care rider, you may have access to a portion of the death benefit of that policy each month (usually 1% to 4% of the death benefit per month) to pay for long-term care expenses. This can be welcome news and an asset hidden in coverage you’ve had for years.
Insurance companies don’t just take your word for it, though. To qualify, the insured must provide to the life insurance company that issued his or her policy a certificate from a physician certifying that he or she is unable to perform at least two activities of daily living (ADLs) or that he or she requires constant supervision as a result of cognitive impairment. If you need assisted living or long-term care, this requirement may be easily met.
Although there isn’t a universal standard that lists what ADLs are, the following five are broadly recognized by most organizations: personal hygiene, dressing, eating, maintaining continence, moving (from seated to standing, getting in and out of bed, walk independently).
Not all permanent life insurance policies include a long-term care rider and not all life insurance carriers offer it as an add-on but it’s worth checking with yours. Also, when a long-term care rider is included as a rider in a life insurance policy, the details vary substantially from one policy and carrier to another. There might be a lifetime dollar limit amounting to a portion or to the full death benefit. You may be able to use funds to pay for care from family members or only to pay for professional care from licensed long-term care providers. The cash value of your policy may or may not be affected. You should review your life insurance policy to find out whether a long-term care rider is included and its actual functioning in the policy you have.
Whether or not your life insurance policy includes a long-term care rider, there’s another option to consider. You may consider selling that policy to pay for long-term care. Depending on the health status of the insured, selling a life insurance policy for cash (with no further premiums to pay) may be a better choice than that of keeping the policy in force and claiming benefits under the long-term care rider. For instance, if your life insurance policy with a long-term care rider only pays for care provided by licensed professionals but you wish to be cared for by your family members, you may pay them with the cash you receive from the sale of your life insurance policy.
Permanent life insurance policies that include a long-term care rider are, everything else being equal, normally more expensive than life insurance policies that do not include it. Therefore, if your policy does not include a long-term care rider it is normally cheaper (less recurrent charges and therefore fewer premiums to be paid into the policy to keep it in force) and more valuable in a sale as compared to an identical policy with a long-term care rider.
You should carefully consider this option even if the cash value of your policy is very small or nil as what you can get out of a sale of your life insurance policy isn’t necessarily linked to the cash value you would get from your life insurance carrier in case of surrender. Plus, you won’t have to pay premiums anymore. Visit mrefinance.com/free-life-settlement-calculator and find out what the value of your life insurance policy is worth.