There is a new option available on certain permanent life insurance policies that can provide monthly benefits if the insured is in need of long-term care.  This benefit, called a “living care rider”, enables the insured to draw upon their death benefit if a qualified physician certifies they are in need of long-term care due to a cognitive disorder (such as Alzheimer’s Disease) or are unable to perform two of the six “Activities of Daily Living” (eating, dressing, toileting, transferring, bathing and continence).  Benefits are payable for a long-term care facility (such as a skilled nursing home), assisted care facility and for home health care provided by a home health care provider.

 The amount of the monthly benefit is selected by the insured.  In most cases, they may select a 1%, 2% or 3% benefit.  For example, if the insured owns a $500,000 policy with a 2% living care rider, then the monthly benefit available for long-term care would be up to $10,000/month ($500,000 x .02 = $10,000).  Benefits are available after a 90-day waiting period.  If, for example, someone were in a long-term care situation (following the 90-day waiting period) and needed benefits for 3 years, they could draw up to $360,000 ($10,000/month x 36 months) for long-term care expenses.  The remaining amount, $140,000 ($500,000 - $360,000), would still be available to the insured’s heirs at their death.

 In regards to tax consequences, benefits received under the living care rider are intended to be treated as accelerated death benefits for federal income tax purposes under Section 101(g) of the Internal Revenue Code, which provides special tax treatment for such payments on the life of a chronically ill insured person receiving qualified long-term care services within the meaning of Section 7702B of the Code (in short, benefits paid should be tax-free but you should always consult your tax advisor in regards to current law).

 The living care rider is currently available as an option on a limited number of “universal” and “variable” life policies.  Both are designed for people who want permanent life insurance protection with the flexibility of being able to access their death benefit in the event of a long-term care need.   This product is available via payroll deductions.  Please call our insurance broker, Mark Meredith (949-833-5845) if you would like more detailed information.