Top worthy and worthless long-term care insurance riders

As more and more consumers see the importance of long term care insurance, companies are continuously finding ways to distinguish themselves from the competition. One way to do this is to offer consumers a range of ways they can customize coverage to fit their budget and their needs. A popular practice among LTC insurers is the use of add-ons or riders. A rider can enhance the coverage offered by a standard LTC insurance policy.

Generally, opting for a rider can raise the cost of the premium. Hence, it is important to know the details of an LTC insurance rider before deciding that it is worth additional money from you.

The following is a list of the most common long term care policy riders in the market today. That list is divided into two groups, the first group is what we consider the most worthy add-ons to an LTC insurance policy while in the second group are what we see as the least worthy LTC riders.

Worth to Think About:

Protection Against Inflation

widely considered the most important rider on an LTC policy. While premium payments can double because of this rider, it would be dangerous to omit it. Here is why, the $150 a day LTC coverage you purchased today may not be enough to cover expenses in the future because of inflation.

There are several types of inflation riders in today's LTC market and these include:

  • Future purchase - also referred to as Guarantee Purchase Option. With this rider, the insurer will offer the policyholder every two or three years to raise the daily benefit without having to meet underwriting requirements anew. The negative side here is the cost of each new offer will be based on the latest age of the covered individual. For many insurers, the offers will stop if the individual rejects it on a couple or more occasions. Typical cost of this inflation rider is 2 percent of the premium. Experts think this is a good option for individuals who are in their 70s.

  • Simple Inflation - in this rider, between 40 percent to 60 percent is added to the premium and the original daily benefits are automatically raised by 5 percent per annum. By the 19th and a half year, the daily benefits will be doubled. Generally considered the best choice for individuals who are in their 60s.

  • Compound Inflation - considered the best option by many, here the premium may be doubled. This inflation rider usually adds 5 percent to the policy's daily benefits and is compounded yearly. By the 14th and a half year, the daily benefits get doubled. Best option for those under the age of 60.

Cash Benefit

This is a popular rider that allows the insured individual greater flexibility in using his LTC insurance. Instead of being reimbursed on their LTC expenses, those who purchase this rider are provided with additional or partial cash and it also affords them the following benefits:

  • Their coverage starts once one hour of care is used.
  • They receive their cash benefit on a daily basis.
  • They are able to receive their cash benefit whether they actually get any LTC care or not on that day.

This rider can be advantageous to those who receive much of the LTC services at home from their own family members. There is no need to submit bills once eligibility has been established.

For example, an insured individual has a family member taking care of him and his needs. He wants to compensate the family member for the assistance given to him. Under a standard policy this is not possible since the family member is not a registered care provider. With this rider there is no need to produce the necessary documents to be able to cover the services of the family member.

The downside here is the price. The cash benefit rider can cost 60 to 100 percent more than a standard reimbursement policy.

Waiver of Elimination Period Rider

Most LTC services are performed at home. Majority of long-term care policies allow consumers to save money by having a longer elimination period. This is the period where LTC expenses are shouldered by the individual prior to the period where benefits are provided by the insurance company.

Since majority of long term care begins at home, some consumers opt to get a longer elimination period and then get a waiver of elimination period rider for home health care. This means that their policy pays out benefits from the day they start receiving care in their homes; the only elimination period they have to cover is for facility care. In most cases, insured individuals will eventually transfer to a facility later on. With this rider, the covered individual receives cash sooner while at the same time his elimination period for facility care gets to be counted down - this means he gets  to receive his benefits uninterrupted.

Many experts find this rider to be beneficial to the consumer. However, you still have to make calculations using different elimination scenarios to determine which will give you greater savings.

Spouse Shared Care

A rider with growing popularity. Here is how this rider works: instead of buying a separate pool of LTC benefits for each spouse, this rider combines the benefits into a single pool, which either party can use. In effect, a three-year coverage for either spouse becomes a total of six years of benefits.

If one partner develops a need for LTC, he can have access to all of the benefits. Also, if one spouse dies without using any of the benefits, the full benefits get transferred to the surviving partner.

The rider typically costs between fourteen to seventeen percent more than a standard policy with similar coverage features. Because of the access to a larger pool of benefits, the advantage that this rider provides can be significant.

Here is an example of how useful this rider can be:

A couple who are both 55 year olds, who are in good health is considering LTC insurance with a $200,000 current value. This policy can provide them a $180 per-day coverage over a three-year period.  The annual premium for two policies amounts to  $1,950. A shared-care rider will increase the premium to $2,260. However, it could provide them savings as it ensures that each spouse will get six years of coverage which is more than the standard policy.

Guaranteed Insurability Option

This add-on allows the insured individual to buy additional LTC insurance in the future without the need to undergo another round of health underwriting process. This means that if the individual develops a serious medical condition that would have barred him coverage, the insurance provider will still allow him to buy a pre-determined amount of coverage.

For instance, the insurer may allow the individual to exercise this option every two year period. When an individual opts to get additional coverage, the new premium rate will be based on his new age. This is a good rider to consider especially for those who are already advanced in age.

What Riders to Avoid

Generally, the following riders are not recommended:

Non-forfeiture Benefit Rider

This add on provides that if an insured person cancels his LTC policy, a minimum amount of insurance already paid up will still be in force. This is a way for the insurance company to compensate for the payments already made to them. Normally, the amount of coverage depends on the cumulative amounts of payments already made.

For example, if the yearly premium amounts to $2,000 and the policy gets canceled after five years, then the total benefits would be $10,000. This is a worthless rider since only four percent of policyholders decide to cancel their coverage during the first ten years of their terms. Besides, an LTC policy becomes more and more important the longer it is in force.

Restoration of Benefits

An add on that allows a person to utilize a portion of his benefits and have them restored once the individual's health is restored and goes on without long term care for a certain period of time (for example, six months).

This rider is worthless because the chances of an individual receiving over 100 days of long term care and then get fully recovered is very low. Hence, it offers no good value to the insured person.

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