Comparing Long-Term Care Insurance Riders: Benefits vs. Costs

When selecting a long-term care (LTC) insurance policy, you're presented with various riders—optional add-ons that can enhance your coverage. While these riders offer valuable benefits, they also increase the complexity and cost of your policy. Our philosophy emphasizes investing in core benefits over adding multiple riders. This guide delves deeper into the differences between common LTC insurance riders, how they can benefit you, and why we typically recommend keeping your policy straightforward, focusing on essential coverage.

Understanding the Role of Riders

Policy riders are additional provisions that you can include in your base LTC insurance policy for an extra cost. They allow you to customize your coverage to better fit your specific needs. However, the added benefits come with higher premiums.

Balancing Benefits and Costs

• Complexity: Each rider adds layers to your policy, making it more complex.
• Cost: Riders can significantly increase your premiums.
• Necessity: Not all riders may be relevant to your situation.

Our Approach: Unless a rider addresses a specific need, we suggest allocating your budget towards enhancing your core benefits, such as higher daily benefit amounts or longer benefit periods.

Compare Side-by-Side Long-Term Care Plans in 3 Minutes

Common Long-Term Care Insurance Riders

Below, we explore some of the most common riders, their benefits, and considerations.

1. Inflation Protection Rider

Importance: Inflation protection is one rider we almost always recommend—included in about 95% of policies we help clients obtain.

How It Works

• Simple Inflation Protection: Increases benefits by a fixed percentage of the original benefit amount each year.
• Compound Inflation Protection: Increases benefits by a percentage of the previous year's benefit amount, leading to more substantial growth over time.

Benefits

• Keeps Pace with Rising Costs: Ensures your benefits maintain their purchasing power as long-term care costs increase over time.
• Asset Protection: Essential for preserving your assets and avoiding underinsuring your future needs.

Considerations

• Cost: Significantly increases premiums.
• Age Factor: Younger individuals benefit more from compound inflation due to the longer time horizon.

Special Note on OneAmerica: With OneAmerica policies, instead of adding an inflation rider, it often makes sense to "pre-inflate"—selecting higher initial benefits to account for future cost increases.

2. Shared Care Rider

How It Works

Allows two policyholders, typically spouses or partners, to share their pool of benefits. If one exhausts their benefits, they can access the other's policy.

Benefits

• Flexibility: Provides access to a larger pool of benefits.
• Protection for Couples: Offers security if one partner requires extensive care.

Considerations

• Cost: Increases the premiums of both policies.
• Potential Exhaustion of Benefits: Both partners may deplete the shared benefits, leaving one without coverage.

3. Survivorship Benefit Rider

How It Works

If one insured person in a joint policy dies after a specified period (usually 10 years), the surviving insured no longer has to pay premiums.

Benefits

• Financial Relief: Eliminates future premium payments for the survivor.
• Long-Term Savings: Can lead to significant savings over time.

Considerations

• Eligibility Period: Requires both insureds to hold the policy for a minimum number of years.
• Added Cost: Increases premiums; assess whether potential savings justify the expense.

4. Return of Premium Rider

How It Works

Refunds premiums paid (minus any claims) to your beneficiaries if you pass away without utilizing the benefits.

Benefits

• Peace of Mind: Ensures your premiums are not wasted if you never need long-term care.
• Estate Planning: Provides financial benefits to heirs.

Considerations

• High Cost: One of the most expensive riders.
• Alternative Solutions: Hybrid policies inherently offer similar benefits.

5. Nonforfeiture Benefit Rider

How It Works

If you lapse on your policy after a certain period, this rider allows you to retain reduced benefits instead of losing coverage entirely.

Benefits

• Protection of Investment: Safeguards the money you've already paid into the policy.
• Safety Net: Offers some level of coverage if you can't continue paying premiums.

Considerations

• Cost vs. Likelihood: Consider the probability of needing this feature.
• Policy Terms: Understand the specific benefits you retain.

Why We Often Avoid Additional Riders

Cost Efficiency

• Premium Allocation: Extra funds spent on riders could be used to enhance core benefits like higher daily benefits or longer coverage periods.
• Compounding Costs: Each rider increases the overall premium, sometimes significantly.

Simplicity

• Ease of Understanding: A straightforward policy is easier to comprehend and manage.
• Avoiding Over-Insurance: Prevents paying for features you may never use.

Uncertainty

• Future Needs Unknown: Without a crystal ball, it's impossible to predict exactly what benefits you'll need.
• Focus on Essentials: Prioritizing core coverage ensures fundamental needs are met.

Our Philosophy: Keep It Simple

We believe in:

• Essential Coverage: Focusing on what matters most—adequate daily benefits, suitable benefit periods, and inflation protection.
• Cost-Effective Planning: Allocating your budget towards benefits that are more likely to be utilized.
• Tailored Advice: Understanding that each individual's situation is unique; we help clients assess whether any riders match specific needs.

Summary Tables

To concisely illustrate the differences between riders and our considerations, we've provided two tables below.

Table 1: Rider Benefits vs. Costs

Table 2: Our Recommendations on Riders

Making Informed Decisions

Assess Your Needs

• Health and Family History: Consider the likelihood of needing extended care.
• Financial Situation: Evaluate your ability to afford higher premiums.
• Support System: Factor in family support and other resources.

Consult a Professional

• Tailored Advice: We help you navigate the options based on your unique circumstances.
• Policy Understanding: Ensure you comprehend the implications of adding or omitting riders.

Conclusion

While riders can enhance a long-term care insurance policy, they also add complexity and cost. Our philosophy prioritizes investing in core benefits over adding multiple riders, except for inflation protection, which we find essential in most cases. By keeping policies straightforward and focusing on fundamental coverage, you can secure financial protection without unnecessary expenses.

Key Takeaways:

• Invest in Core Benefits: Allocate your budget to enhance daily benefits and coverage periods.
• Inflation Protection is Crucial: Include inflation protection to maintain the value of your benefits over time.
• Be Selective with Riders: Only add riders that address specific, critical needs.
• Simplify Where Possible: A simpler policy is often more cost-effective and easier to manage.

Note: Policy features and availability may vary by insurer and state partnership programs. Always review the specific policy details and consult with a licensed insurance professional for personalized advice.