DeCesare Retirement Specialists

Work to Wealth

Life Insurance with Long Term Care Riders

| Estate, Insurance, Protection, Retirement, Work to Wealth

Our featured article of the month, Life Insurance with Extended-Care Riders, briefly touches on a topic of growing importance as our Boomer generation ages; funding Long Term Care. While the article uses the term “Extended Care”, the terms are synonymous. Long Term Care (LTC) needs are expanding greatly as seniors live longer and medical advancements continue. The pandemic has greatly accelerated this need.  A valid concern amongst seniors, Boomers, and their children is coordinating care for a loved one and addressing the associated costs.

LTC Insurance, in its traditional form, is a policy specifically designed to assist in these situations. While not designed to cover 100% of the costs associated with a LTC event, policies can help significantly offset the financial impact. However, due to the changing landscape, repricing of policies has been significant due to the phenomenon of policy owners living longer and canceling their policies at a lower rate than anticipated. I highlighted the costs and concerns of LTC in a prior article titled Your Extended Care Strategy.

This article describes a newer “chasis” for LTC insurance, a life insurance policy with LTC benefits. These policies have gained in popularity due to its nature of use it or lose it. Most consumers are not averse to this type of traditionally structured insurance, evidenced by the purchases of car insurance, homeowners’ insurance, etc. However, this is not the case in the LTC industry where the perception of utilization is low. Eventhough, statistics highlight a 7 out of 10 chance of using LTC insurance coverage at some point past the age of 65, many shy away from this type of insurance coverage.

Therefore, a hybrid policy was created that provides some piece of mind to those that worry about “wasting” their money on coverage they will never use. The hybrid-policy offers an alternative, allowing for more choices when considering how to plan for potential LTC expenses. Additionally, a hybrid-policy may be more accessible to those that cannot qualify for a traditional policy, as insurance companies tighten their underwriting requirements. Either way, having a discussion and reviewing your options for funding a potential LTC event, through a traditional policy, a hybrid-policy or by self insuring, is a prudent consideration in what is continuing to grow into a significant and costly circumstance. Follow this link for helpful resources from AALTCI.


As conventional Long Term Care policies grow costlier, alternatives have emerged.


The COVID-19 pandemic has changed extended-care policies. While the specific policy information varies from company to company, in general, the pandemic has made it more difficult to qualify for extended-care policies. This can be particularly challenging if you’re in a high-risk group.
Around 7 out of every 10 seniors are projected to need extended care during their lifetime, and many of these medical needs aren’t covered by Medicare, Medicaid, or standard health insurance. Unless you have made arrangements for extended care, you are choosing to self insure should you require this type of assistance.1
With the added restrictions that make it more difficult to qualify for a stand-alone policy, hybrid policies that combine life insurance and extended-care policies have gained traction. Some people are choosing to go this route over traditional extended-care policies. In 2019, over 250,000 hybrid policies were sold, compared to just 55,000 in stand-alone extended-care policies.2,3
Several factors will affect the cost and availability of life insurance and extended-care insurance, including age, health, and the type and amount of insurance purchased.
Life insurance policies have expenses, including mortality and other charges. If a life insurance policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications.
You should consider determining whether you are insurable before implementing a strategy involving life insurance or extended-care insurance. Any guarantees associated with the policies are dependent on the ability of the issuing insurance company to continue making claim payments.
What is a hybrid policy? Hybrid extended-care policies combine life insurance with extended-care coverage. As with a standard extended-care policy, the earlier you start paying premiums for one of these hybrid insurance products, the more manageable the premiums may be. You may need to pass medical underwriting to qualify for coverage. The encouraging news here is that some people who are not healthy enough to qualify for a stand-alone extended-care policy may qualify for a hybrid policy. Under one of these hybrid policies, if you never spend down the extended-care benefits the policy may be structured to transition to a life insurance policy with a death benefit payout. Some traditional extended-care policies operate on a “use it or lose it” basis, so if you never touch it, you may not see any money back.2,3
Many extended-care hybrid policies are funded in one lump sum, which may influence a buyer’s decision. Some extended-care policies sold in the 1990s and early 2000s have seen double-digit premium increases, putting pressure on the owners to manage payments. However, current analysis shows that this was the result of an error of assuming only 30% of people with extended-care policies would use them.2,3
Are these hybrid policies just mediocre compromises? They have detractors as well as fans, and the detractors cite the fact that a standalone extended-care policy generally can be structured to provide more attractive benefits than a hybrid policy. They also cite their two sets of fees, per their two forms of insurance coverage.2,3
As always, if you have any questions about how extended-care factors into your estate strategy, I’m always available to discuss it with you.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note—investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax, or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
1., February 19, 2021
2., October 5, 2020
3., February 22, 2021