A life insurance policy with a long-term care (LTC) rider provides long-term care benefits that are funded by:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
A long-term care rider attached to a life insurance policy pays benefits for covered long-term care services, and those benefits are funded by accelerating (drawing down) the policy's death benefit. Money used for LTC benefits reduces the death benefit dollar for dollar (or by the amount of the acceleration), so the rider converts a death benefit into a living benefit for care needs. This design lets the policyowner address LTC costs without buying a separate LTC policy. The rider has its own eligibility triggers, typically the inability to perform activities of daily living or cognitive impairment.
Why the other options are wrong
- B) The rider does not change income tax exclusion at death. The LTC rider consumes the death benefit by accelerating it for care, rather than enhancing any tax treatment.
- C) No pension plan funds the rider. The policy’s own death benefit backs the accelerated LTC payments made under the rider.
- D) The policy is not surrendered to the state. It remains a private contract between the insurer and the policyowner, with the death benefit reduced by the LTC benefits used.
Memory hook
LTC rider = spend your own death benefit on care while alive. Same money, moved earlier, benefit reduced.