Life insur­ance has many uses, includ­ing income replace­ment, busi­ness con­tin­u­a­tion, and estate preser­va­tion. Long-term care insur­ance pro­vides finan­cial pro­tec­tion against the poten­tial­ly high cost of long-term care. If you find your­self in need of both types of insur­ance, a life insur­ance pol­i­cy that com­bines a death ben­e­fit with a long-term care ben­e­fit may appeal to you.

The appeal of this com­bi­na­tion pol­i­cy lies in the fact that either you’ll use the pol­i­cy to pay for long-term care expens­es or your ben­e­fi­cia­ries will receive the insur­ance pro­ceeds at your death.


Here’s how it works

Some life insur­ance issuers offer life insur­ance with a long-term care rid­er avail­able for an addi­tion­al charge. If you buy this type of pol­i­cy, you can pay the pre­mi­um in a sin­gle lump sum or by mak­ing peri­od­ic pay­ments. In any case, the pol­i­cy pro­vides you with a death ben­e­fit that you can also use to pay for long-term care relat­ed expens­es, should you incur them.

The amount of death ben­e­fit and long-term care allowance is based on your age, gen­der, and health at the time you buy the pol­i­cy. The appeal of this com­bi­na­tion pol­i­cy lies in the fact that either you’ll use the pol­i­cy to pay for long-term care expens­es or your ben­e­fi­cia­ries will receive the insur­ance pro­ceeds at your death. In either case, some­one will ben­e­fit from the pre­mi­ums you pay.


Long-term care riders

The long-term care ben­e­fit is added to the life insur­ance pol­i­cy by either an accel­er­at­ed ben­e­fits rid­er or an exten­sion of ben­e­fits rider.

Accel­er­at­ed ben­e­fits rid­er –An accel­er­at­ed ben­e­fits rid­er makes it pos­si­ble for you to access your death ben­e­fit to pay for expens­es relat­ed to long-term care. The death ben­e­fit is reduced by the amount you use for long-term care expens­es, plus a ser­vice charge. If you need long-term care for a lengthy peri­od of time, the death ben­e­fit will even­tu­al­ly be deplet­ed. This same rid­er also can be used if you have a ter­mi­nal ill­ness that may require pay­ment of large med­ical bills. Because accel­er­at­ing the death ben­e­fit can have unfa­vor­able tax con­se­quences, you may want to con­sult your tax pro­fes­sion­al before exer­cis­ing this option.

Exam­ple: You pay a sin­gle pre­mi­um of $50,000 for a uni­ver­sal life insur­ance pol­i­cy with a long-term care accel­er­at­ed ben­e­fits rid­er. The pol­i­cy imme­di­ate­ly pro­vides approx­i­mate­ly $87,000 in long-term care ben­e­fits or $87,000 as a death ben­e­fit. If you incur long-term care expens­es, the accel­er­at­ed ben­e­fits rid­er allows you to access a por­tion, such as 3% ($2,610), of the death ben­e­fit amount ($87,000) each month to reim­burse you for some or all of your long-term care expens­es. Long-term care pay­ments are avail­able until the total death ben­e­fit amount ($87,000) is exhaust­ed (about 33.3 months). What­ev­er you don’t use for long-term care will be left to your heirs as a death benefit. 

(The hypo­thet­i­cal exam­ple is for illus­tra­tion pur­pos­es only and does not reflect actu­al insur­ance prod­ucts or per­for­mance. Guar­an­tees are sub­ject to the claims-pay­ing abil­i­ty of the issuer.)

Exten­sion of ben­e­fits rid­er –An exten­sion of ben­e­fits rid­er increas­es your long-term care cov­er­age beyond your death ben­e­fit. This rid­er dif­fers from com­pa­ny to com­pa­ny as to its spe­cif­ic application.

Depend­ing on the issuer, the exten­sion of ben­e­fits rid­er either increas­es the total amount avail­able for long-term care (the death ben­e­fit remains the same) or extends the num­ber of months over which long-term care ben­e­fits can be paid. In either case, long-term care pay­ments will reduce the avail­able death ben­e­fit of the pol­i­cy. How­ev­er, some com­pa­nies still pay a min­i­mum death ben­e­fit even if the total of all long-term care pay­ments exceeds the pol­i­cy’s death ben­e­fit amount.

Con­tin­u­ing from the pre­vi­ous exam­ple, if the pol­i­cy’s exten­sion of ben­e­fits rid­er increas­es the long-term care ben­e­fit (the death benefit–$87,000–remains the same) to three times the death ben­e­fit ($261,000), the month­ly amount avail­able for long-term care increas­es to $7,830. On the oth­er hand, if the exten­sion of ben­e­fits rid­er extends the length of time the month­ly long-term care ben­e­fit is avail­able, then the month­ly pay­ments ($2,610) are extend­ed for an addi­tion­al 24 to 36 months beyond the ini­tial num­ber of months (33.3) available.


Other provisions

Typ­i­cal­ly, qual­i­fy­ing for pay­ments under a long-term care rid­er is sim­i­lar to the require­ments for most stand-alone long-term care poli­cies. You must be unable to per­form some of the activ­i­ties of dai­ly liv­ing (bathing, dress­ing, eat­ing, get­ting in or out of a bed or chair, toi­let use, or main­tain­ing con­ti­nence) or suf­fer from a severe cog­ni­tive impairment.

An elim­i­na­tion peri­od may also apply: you pay for the ini­tial cost of long-term care out-of-pock­et for a spe­cif­ic num­ber of days (usu­al­ly 30 to 90) before you can apply for pay­ments under the pol­i­cy. As with all life and long-term care insur­ance, the insur­ance com­pa­ny will require you to answer some health-relat­ed ques­tions and sub­mit to a phys­i­cal exam­i­na­tion before issu­ing a com­bi­na­tion pol­i­cy to you.


Is a combination policy right for you?

Decid­ing whether a com­bi­na­tion pol­i­cy is right for you depends on a num­ber of fac­tors. Do you need life insur­ance and long-term care insur­ance? How much life and long-term care insur­ance will you need? How long will you need it? Will the long-term care part of a com­bi­na­tion pol­i­cy pro­vide suf­fi­cient coverage?

A long-term care rid­er may not pro­vide as many fea­tures as a stand-alone long-term care pol­i­cy. For exam­ple, the com­bi­na­tion pol­i­cy may not cov­er assist­ed liv­ing or home health aides. It also may not pro­vide an infla­tion adjust­ment, an impor­tant fea­ture con­sid­er­ing the ris­ing cost of long-term care. The tax ben­e­fits offered by a qual­i­fied long-term care pol­i­cy may not apply to the long-term care por­tion of com­bi­na­tion poli­cies, which could result in tax­a­tion of long-term care ben­e­fits received from the policy.

What if your life insur­ance needs change as you get old­er and you find that you no longer want life insur­ance pro­tec­tion? It’s not uncom­mon for peo­ple to drop their life insur­ance in their lat­er years if there’s no com­pelling need for it, but if you sur­ren­der the com­bi­na­tion pol­i­cy, you’re also for­feit­ing the long-term care ben­e­fit it pro­vides, usu­al­ly at a time when you are most like­ly to need it.

Example of Combination Permanent Life/LTC Policy Features

Exam­ple of Com­bi­na­tion Per­ma­nent Life/LTC Pol­i­cy Features


And keep in mind that as you use your long-term care ben­e­fits, you’re deplet­ing the death benefit–a death ben­e­fit you pre­sum­ably want­ed to pass on to your heirs or per­haps use to pay for estate taxes.

Final­ly, com­pare costs of com­bi­na­tion poli­cies to oth­er forms of life insur­ance, such as term insur­ance, and stand-alone long-term care poli­cies. Depend­ing on your age and health, the cost for the com­bi­na­tion life pol­i­cy may actu­al­ly be high­er than the total pre­mi­ums paid for sep­a­rate life insur­ance and long-term care poli­cies, espe­cial­ly if your life insur­ance need is tem­po­rary (such as income replace­ment dur­ing your work­ing years) rather than permanent.