Tier One: Why Long-Term Care Riders Are Becoming the Smart Choice for Affluent Families

When affluent families think about financial planning, they often focus on preserving wealth, minimizing taxes, and ensuring smooth multigenerational transfers. Yet, one area that continues to rise in importance and cost is long-term care.

A good indicator that there is a problem accessing affordable long-term care coverage is when very wealthy individuals become concerned about both the costs of long-term care and the cost of finding sufficient insurance to cover these sky rocketing costs.   We are seeing this left and right at Life Insurance Strategies Group.

According to Genworth’s 2023 Cost of Care Survey, the national median annual cost of a private room in a nursing facility is now nearly $117,000, while in-home health aide services average $75,500 per year. These expenses are increasing at rates well above general inflation, and with longer life expectancies, the likelihood of needing extended care has never been higher. In fact, research shows that seven out of ten people over age 65 will need some form of long-term care during their lifetimes.

For high-net-worth families, this isn’t about the ability to pay for care - it’s about the efficiency of how those costs are managed and ensuring that family wealth is not unnecessarily eroded. That’s why life insurance with long-term care (LTC) riders, sometimes called hybrid policies, are surging in popularity.

The Shift Away from Traditional Long-Term Care Insurance

Not long ago, standalone LTC insurance was the only solution. These policies reimbursed costs for services like nursing homes, assisted living, or in-home care if you could not perform two of six activities of daily living (such as bathing or dressing).

While effective in theory, standalone LTC coverage has proven problematic in practice:

• Unpredictable premiums – Carriers often increased rates after policies were issued, sometimes dramatically.

• Market contraction – Many insurers exited the space after finding claims risk difficult to manage.

• “Use it or lose it” issue – If care was never needed, years of premiums could evaporate with no benefit.

  
  

For wealthy families accustomed to control, predictability, and efficiency, these drawbacks made traditional LTC insurance less attractive.

Enter Hybrid Policies: Two Benefits in One

The insurance industry responded with hybrid solutions—life insurance contracts (typically universal or whole life) that include a long-term care rider.

Here’s how they work:

• The policy provides a death benefit payable to beneficiaries.

• If the insured needs long-term care, they can accelerate the death benefit, drawing funds from the policy to pay for care.

• Care can be received in a nursing home, assisted living, or even at home (sometimes with flexibility to choose a family caregiver).

• Any unused benefits remain as a death benefit for heirs.

  
  

This dual structure transforms what was once a sunk cost into a guaranteed benefit, whether used for care or as a wealth transfer tool.

Why High-Net-Worth Families Prefer LTC Riders

For affluent individuals, hybrid life insurance with LTC riders offers several advantages over standalone coverage:

1. Guaranteed Return on Premiums. Every dollar you contribute provides value either as long-term care benefits during life or as a death benefit afterward. It’s no longer a “use it or lose it” proposition.

   
   

2. Stable, Predictable Premiums. Unlike standalone policies with variable pricing, most hybrid contracts offer guaranteed level premiums. This allows families to structure payments, whether as a lump sum, 10-pay, 15-pay, or ongoing annual premiums, and lock in certainty.

   
   

3. Cash Value Growth. Because these are cash value policies, they accumulate a reserve that can be accessed if financial needs change. This adds flexibility beyond traditional coverage.

   
   

4. Tax Advantages. Hybrid policies may offer favorable tax treatment, especially when structured through business entities or when premiums qualify as deductible medical expenses. Business owners can find these solutions compelling.

   
   

5. Care Delivered on Your Terms. Many contracts allow benefits to cover in-home care, a preference for many affluent families who wish to receive assistance without leaving their homes.

   
   

A Practical Example

Consider Manuel, age 65, who purchases a $10,000,000 universal life insurance policy with an LTC rider that permits up to 75% of the death benefit to be accelerated to pay for LTC expenses.

If he never requires care, his children receive the full $10,000,000 tax-free at his passing.

If Manuel does require care, he can accelerate up to $7,500,000 of benefits to cover expenses such as home health aides or assisted living. For example, if he uses $4,000,000 for care, his heirs will still receive $6,000,000 at death.

This flexibility allows Manuel to plan confidently knowing he has coverage if he needs it, but his premiums will never be wasted if he doesn’t.

Tax Efficiency: An Overlooked Benefit

Hybrid LTC policies aren’t just about care; they can also be a tax-efficient planning tool.

• C corporations may deduct the portion of the premium attributed to LTC /LTC inflation (but not the death benefit) for owners and employees (with certain reporting requirements).

• LLCs, partnerships, and S corps may deduct portions of premiums, often reporting them as compensation.

• For individuals, certain premiums may qualify as deductible medical expenses if they exceed 7.5% of adjusted gross income.

• Health Savings Accounts (HSAs) can also be tapped to pay for some long-term care premiums tax-free.

  
  

When coordinated with advisors, these strategies allow high-net-worth families to integrate LTC protection into a broader tax-advantaged wealth plan.

When to Consider Adding an LTC Rider

Timing matters. The longer you wait, the higher the premiums. Typically, the ideal window for purchasing is between ages 50 and 65, when insurability is favorable and pricing remains efficient.

If you are:

• Planning retirement and want healthcare contingencies covered,

• Looking to replace inefficient standalone LTC coverage,

• A business owner seeking tax deductions on premiums, or

• Concerned about protecting legacy assets from future care costs

  
  

…then a hybrid life insurance policy with an LTC rider deserves a place in your planning discussions.

Planning for What is Likely to Happen

For wealthy families, long-term care planning isn’t about whether you can afford care, it’s about how you’ll pay for it without disrupting your estate, legacy, or financial independence.

Life insurance with LTC riders is becoming the preferred solution because it provides:

• Predictable costs,

• Flexible use of funds,

• Tax efficiencies, and

• Guaranteed benefits - whether for care or for heirs.

Now is the time to evaluate how these solutions fit into your broader wealth strategy. Waiting not only increases the cost but also increases the risk of losing the opportunity to secure coverage altogether.

At Life Insurance Strategies Group, LLC, we do not sell products.   We help our affluent individual and institutional clients make decisions about complex situations involving life insurance.  If we can help you, reach out to us at www.lifeinsurancestrategiesgroup.com.