Insurance That Pays Death Benefits Before You Die an Option for Long-Term-Care Expenses

Michael Filbrandt, CLU®, ChFC®
Jul 20, 2018

Living Benefits Rider

In the last several years a new type of insurance policy has emerged that pays death benefits before you die. A living benefits rider is available through several major life insurance companies, and the benefits are very attractive. You may see these referred to as “hybrid” policies because they contain features of both life insurance and long-term-care policies.

The rising cost of medical care has made the underwriting of long-term-care policies extremely challenging for insurance companies, so premiums have had to be increased. After long-term-care insurance policies became very popular in the 1990s, many insurers realized they had vastly underpriced the policies. Therefore, they had to increase rates substantially, after which the business began to wane.

Underwriting mortality risk for life insurance has, of course, been around for many years. In fact, in the last several years, the cost of life insurance has gone down because life expectancies have increased. Some life insurance companies will, for an additional premium, issue a living benefits rider that will pay out the death benefit before the insured dies. One way these living benefits can be used is to pay for long-term care expenses.

The benefits of this type of life/long-term-care combination policy are very attractive:

  • The premiums are guaranteed, and will not go up in the future.
  • A holder of such a policy may withdraw funds from the policy for long-term care needs until funds run out, at which time the insurance company would cover care.
  • Should the insured not need long-term care benefits, the cash values of the policy provide access to other types of support with retirement income.
  • Whatever policy benefits are not used during the insured’s life span become a guaranteed benefit payable to a beneficiary at death.

In most situations, the benefits described above are received totally income-tax-free by the insured or beneficiary.

At large employers such as universities, life and health insurance benefits are provided through a group plan without any evidence of insurability. In other words, regardless of the employee’s health, coverage is guaranteed.

However, when the employee leaves the university, the coverage ceases. Should the employee want to purchase life or long-term-care insurance to supplement or replace that benefit, the employee will have to go through an insurance underwriting process. The underwriting process generally includes a full medical examiner review of your past medical records. Insurance coverage may or may not be available, based on the applicant’s health status and history.

We recommend making the decision whether or not to extend your life insurance several years prior to retirement. Your current and past health history will be considered by the insurance underwriter. The earlier you begin this process, the more likely you are to avoid having health issues that crop up as you age complicate the life insurance approval process. Be sure to consider the “hybrid” policies with a rider allowing death benefits to be payable before death.


Michael Filbrandt, CLU®, ChFC®

Co-founder and Chairman of the Board Michael Filbrandt is the firm’s visionary leader. His life’s mission is to help as many people as possible to achieve financial independence for themselves and their families. His passion is to build Filbrandt &...

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