What Is a Long-Term Care Rider?
A long-term care (LTC) rider is an optional feature you can add to an annuity that lets you use part of your contract’s value to pay for care if you can’t perform everyday activities like bathing or dressing. It helps protect your retirement income from the high costs of extended care without buying a separate long-term care policy.
- The average cost of long-term care in the U.S. is about $2,200 to $10,650 per month in 2025, depending on the service.
- 7 in 10 Americans turning 65 will need some form of long-term care in their lifetime.
By adding an LTC rider, you’re combining income and care protection in one plan, giving you flexibility if health needs change later in life.
How Does a Long-Term Care Rider Work?
When you add a long-term care rider to your annuity, the insurance company creates two pools of money:
Your Income Fund
Regular annuity payments you can use for any purpose
Your Care Fund
Additional money available if you need assistance with daily living activities, such as bathing, dressing, or eating
If care is needed, the LTC rider can double or even triple your monthly payout for a set period, helping cover home health services or nursing care. If you never need care, your annuity continues paying income as usual — and any remaining value can go to your beneficiaries.
What is the Tradeoff of a Long-Term Care Rider?
Adding an LTC rider does reduce the annuity’s base interest rate or income potential. That’s because part of your premium funds the potential care benefit.
Think of it as exchanging a small portion of growth for the ability to access larger benefits later — a safety net that prioritizes protection over maximum yield. For many retirees, that trade-off feels worthwhile.
If more income is desired than anything else regardless of the need for long-term care, the retiree should consider funding an annuity for guaranteed income. But if the goal is protection, an annuity with an LTC rider provides that balance.
John Stevenson, CFF
How Can I Access My Fund From a Long-Term Care Rider?
You will have to meet certain health criteria to qualify for a deferred long-term care annuity. To access the benefit, you must show that you need help with activities of daily living, such as eating, getting dressed, taking a shower or bath, using the bathroom or moving from one place to another. It doesn’t matter if the health condition is permanent or temporary.
If you need to access the long-term care fund, the monthly payout will usually be a multiple of your normal monthly income stream from the annuity, and sometimes, these riders can double or even triple your monthly payout for a certain period. For example, a $100,000 annuity may pay out $200,000 or $300,000 worth of long-term care benefits for up to five years.
Pros and Cons of a Long-Term CareRider
Pros
- Immediate access to long-term care funds
- Tax-advantaged structure for care benefits
- Predictable premiums (no annual increases)
- Remaining value passes to heirs
Cons
- Slightly lower annuity growth rate
- Complex tax implications
- One-time upfront cost
- May not cover all care expenses
I have many clients who reach out for long-term care coverage through annuities, but often, an actual long-term care policy provides higher payouts than an annuity. The downside is that it only covers long-term care, not other needs. If more income is desired than anything else regardless of the need for long-term care, the retiree should consider funding an annuity for guaranteed income in their later years to cover additional expenses, including long-term care needs.
John Stevenson, CFFOwner and Advisor at Stevenson Retirement SolutionsJohn Stevenson, a Certified Financial Fiduciary®️, specializes in securing retirements with tax-free accounts. With a focus on guaranteed retirement, he’s ensured none of his clients suffer from market fluctuations. As a renowned educator and podcast host, John empowers thousands weekly, sharing his expertise in minimizing taxes and protecting against financial downturns.
When Does a Long-Term Care Rider Make Sense?
Planning for long-term care isn’t just about numbers; it’s about preparing for life’s “what-ifs” without losing control of your finances. An LTC rider can help you balance protection and flexibility, giving you access to extra funds for care if you ever need it while still keeping your annuity working for you.
An LTC rider is ideal for someone who:
- Wants coverage for potential care costs but doesn’t want to buy a separate policy
- Values liquidity and the ability to leave remaining funds to heirs
- Prefers a single, upfront premium rather than annual policy increases
- Understands that the rider will slightly lower their interest rate or payout
It may not be right for everyone. If you already have robust long-term care coverage or need the highest possible annuity rate, a standalone policy or different rider might fit better.
Example: Turning $100,000 Into a Dual-Purpose Safety Net
Sally invests $100,000 into a fixed annuity with a long-term care rider. If she stays healthy, she might receive a steady income for life. But if she needs care, her monthly benefit could double or triple for up to five years, providing up to $300,000 in total care coverage. That flexibility can mean the difference between draining savings and maintaining independence.
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How Does a Long-Term Care Annuity Compare to Long-Term Care Insurance?
Both options help cover extended care needs, but they work in very different ways. A long-term care annuity blends lifetime income with care coverage, while traditional long-term care insurance focuses solely on reimbursing care expenses.
| Feature | Traditional LTC Insurance | Long-Term Care Annuity |
|---|---|---|
| Payment Structure | Ongoing monthly or annual premiums | One-time lump-sum premium |
| Premium Increases | Can rise over time | Locked in with no future rate hikes |
| Use of Funds | Only pays if you need long-term care | Pays income whether or not you need care |
| Underwriting | Typically stricter medical screening | More lenient health requirements |
| Cost | Can be more expensive long-term | Generally lower overall cost |
| Flexibility | Covers only care-related costs | Combines care protection + guaranteed income |
In short, a long-term care annuity can provide peace of mind by giving you guaranteed income and care coverage in one product, whereas traditional LTC insurance offers potentially higher reimbursements but less flexibility and no payout if you never need care.
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“Very informative and easy to understand. Now I know where to go from here! Sounds like a good alternative for those who do not have long-term care insurance. Wished my parents had signed up for LT care, as well as myself! I had the opportunity to sign all of us up with NO health questions when I worked for the U.S. government. Big mistake.”
