Long-Term Care (LTC) Rider in Life Insurance

Life insurance riders, also called add-ons, can be opted to make your current basic insurance plan way more comprehensive and robust. These are optional services that can be added by paying extra premium. They help in expanding the overall coverage of a policy and help the policyholder personalise the base plan according to their needs. Long-term Care rider is one such add-on. Read ahead for details. 

What is a Long-term Care (LTC) Rider?

A Long-term Car Rider is an add-on cover that can be purchased along with specific life insurance policies to ensure coverage in case of an illness resulting in the requirement of long-term care for the patient. 

The cost of medical treatment has risen manifold in the past decade and so has inflation. Diagnosis of an illness can bring tremendous financial and emotional burden. This can be made worse in case one lacks financial preparedness. To tackle this, a Long-Term Care Rider (LTCR) can be beneficial. It is better than buying a standalone policy for long-term care because here the policyholder gets the benefits of long-term care with a death benefit. 

LTCR are usually tagged along with Term policies. These are aimed to provide for the cost of care of the policyholder in case of any severe physical or cognitive impairment where they are unable to carry out the necessary daily activities without any external help. This occurs usually after a serious medical condition like a major surgery, accident, stroke, etc.

The waiting period to receive the benefits of a LTCR are specified in the policy document. The payments received towards this rider are subtracted from the death benefit and it decreases the cash value of a life insurance plan. This eventually means that the amount received by the nominee of the policyholder as death benefit will decrease.

Key points related to a Long-term Care Rider

Here are the key points associated with a Long-term Care Rider.

• The policyholder needs to be diagnosed with a chronic illness due to which there shall be a reported inability to perform various daily life activities like eating, bathing, dressing, and many others.

• LTCR cannot be bundled with any insurance plan. It is available with specific policies only.

• LTCR may take up to 90 days for payout depending upon the terms and conditions of the insurer.

• LTCR comes with a maximum monthly benefit and a maximum lifetime limit.

• The term of the rider and the sum assured by the rider should not exceed the term and the sum assured of the base policy. As per the guidelines, the total amount paid to the riders should not exceed 30 percent of the premium of the primary policy. In term plans, the amount of health riders should not exceed 100 percent of the primary plan premium.

• Conditions related to the primary policy will also be applied to the rider. Some can be the policy term, age at entry, sum assured, etc.

Benefits of Long-term Care rider

Top benefits of a Long-term Care Rider are as follows.

• Some plans may provide a minimum death benefit to the nominees of the policyholder even if they exhaust the long-term care benefits of an insurance plan.

• The Long-term Care Rider prevents the policyholder from burning out their savings to pay the costs of medical care.

• Long Term Care benefits are exempt from tax.

What are the different types of riders?

Here’s a list of different types of popular riders in life insurance.

• Long-term Care Rider (LTC)

This rider helps the policyholder access the sum assured while they are alive and need it for medical expenses. This amount may be paid as a lump sum or there might be reimbursement towards the expenses made. These are extremely beneficial to meet the high cost of treatment at the moment. This is also called a Later-in-life Care Rider as the amount paid can be utilised for extra help needed to carry out the daily activities of life. Some common disorders where activities of daily living may be hampered are Parkinson’s disease, arthritis, stroke, and many more. These can be usually attached to a Term Plan. The policy document clearly states the nursing care that is eligible under this rider.

• Critical Illness Rider

Under Critical illness rider, the insurer pays a lump sum amount to the policyholder in case the policyholder is diagnosed with a critical illness. The critical illnesses covered under this rider are mentioned in the policy document. Some common ones are heart attack, stroke, organ transplants, renal failure, cancer, and many others. The sum insured may decrease after the payment for critical illness depending on the term and conditions of the insurer. With the increasing cost of medical treatment, this rider can be used to meet medical expenses after diagnosis.

• Waiver of Premium Rider

This rider works best in cases the policyholder is not able to pay the premiums for the policy at any given time. This can be due to loss of income due to disability or developing a critical illness.

• Accidental Death Benefit Rider

This rider provides added benefits to the nominee of the policyholder in case the policyholder passes away in the event of an accident during the policy term. The choice of payment for the premium can be set by the policyholder as a single payment or regular payment. This rider is exceptionally beneficial to the sole breadwinners of a family.

• Permanent Disability Rider

This rider provides the policyholder with a substitute for income in case of a disability. The criteria for disability is mentioned in the policy document and may vary from one insurer to another. The insurance company regularly pays an amount of money to the policyholder for a certain period of time.

• Income Benefit rider

This rider provides income assurance to the beneficiaries of the policyholder in case they pass away. This is paid to the nominees regularly for a specific time.

• Return of Premium Rider

Under this rider, the premiums paid towards a life insurance plan are refunded (as per the policy terms) by the insurer to the policyholder in case they outlive the policy term. This happens when there is no payout for the death benefit and the policy reaches maturity.

What are the benefits of riders?

Here’s a list of prominent benefits of life insurance riders.

• Better coverage

Even in cases where one thinks to be fully protected against any financial emergencies, the worst can still not be predicted. Even if the sum assured is selected by the policyholder considering all aspects of life, it may still be insufficient to meet the requirements of their dependents in the event of their untimely demise. The addition of a rider can be extremely helpful in these circumstances. If the sum assured of a policy is 50 lakhs, an additional rider can add 10 lakhs to the sum assured. This will be paid to the nominees in case of an unforeseen event. Therefore, riders can help increase the overall coverage of a base plan.

• Enhanced security

The addition of riders enhances the scope of policy which means it can tackle various financial emergencies better. It expands its financial cover beyond death benefits. This means that unforeseen events like a diagnosis of a critical illness, any disabilities, and treatment costs are also covered by these riders. This makes the base plan more robust to tackle different risks throughout life.

• Customise

The policyholder is able to customise the plan to suit their needs. The financial requirements of various policyholders may differ. To meet these, different riders can be bundled up with one base plan. This is a great way to tailor a plan to be better prepared for the future.

• Tax exemption

The premiums paid towards insurance plans are exempt from tax under the Income Tax Act of Section 80C for Health Insurance Plans. This makes the payments paid with riders also eligible for tax exemption.

• Affordability

The addition of riders helps a policyholder to personalise the plan to suit his requirements. This increases the overall cost of premiums but is still lower compared to paying premiums towards different insurance plans. Therefore, usually one plan with riders is an economical choice rather than investing in multiple plans.

• Extra benefits

Some extra benefits like living benefits, supplemental coverage for family members, and child support for the education of the policyholder’s children can also be added to a base plan. The terms and conditions of various insurers may vary. So, one must read the policy document carefully.

How to choose a perfect rider

Some tips to choose a suitable rider for you are as follows. 

• The choice of riders available: All riders may not be available with a basic insurance plan. This must be carefully understood before buying the base plan as riders can only be added at the time of purchase or renewal of a policy.

• Identify the purpose: Each rider added to a policy addresses one particular financial emergency. Therefore, the expectations or outcomes that are desired by the policyholder must be clearly understood. 

• Affordability: The total cost of the premium goes up with the addition of riders. Therefore, the riders must be included keeping affordability in mind. The price of the premium should not become overbearing for the policyholder. The financial responsibilities and liabilities must be analysed well.

• Terms and conditions: It is important to read the terms and conditions as stated in the policy document to become aware of the inclusions and exclusions.

Points to remember while purchasing a rider

Key pointers to keep in mind while purchasing a rider are as follows. 

• The coverage offered by the primary insurance rider and the primary plan should be able to meet the financial requirements of the policyholder and the dependents.

• The policyholder should assess the status of his health well before purchasing a policy. The history of chronic illnesses and lifestyle choices are good parameters to analyse the probability of developing a terminal sickness that may require long-term care.

• The conditions not covered by the riders should be carefully read to save the policyholder from disappointment when the need for benefits arises.

• There is no limit to the number of riders that can be bundled up with a primary plan.

• Riders are exempt from tax under various sections like Section 80C, Section 80D, and Section 10(10D) depending on the type of rider.

• The amount paid for riders should not exceed 30 percent of the amount of primary policy and 100 percent in case of health-related riders.

• Rider benefits are terminated at the maturity of the insurance policy.

Frequently Asked Questions

Below are some of the frequently asked questions on Long-Term Care (LTC) Rider in Life Insurance

Is a Long-Term Care rider worth it?

With increasing age, the possibility to develop a terminal illness also increases. This means that the probability of requiring long-term medical care also increases. Therefore, it is a wise choice to invest in this rider as it saves the policyholder from exhausting his savings in case the need arises.

Can I purchase a rider without a basic plan?

No, a rider can only be purchased with a primary policy.

Can I cancel a rider after purchase?

Yes, a rider can be cancelled after purchase. This will decrease the amount paid toward premiums.

Can I add a rider to my life insurance policy later? 

In most cases, a rider can only be added at the time of purchase or renewal of a policy.

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on industry experience and several secondary sources on the internet, and is subject to changes.

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