Following the money, one step at a time

Plenty of pages will tell you that a life insurance policy with a long-term care rider “lets you use your death benefit for care.” That sentence is true and almost useless. What people actually need to know is what happens on the day they file a claim: who decides, how long the wait is, how much comes out each month, what it costs the beneficiaries, and what is left at the end. This page follows the money through, in order.

If you have not yet met the basic idea, start with what a long-term care rider is, or with long-term care insurance explained for the traditional alternative. If you are weighing the whole category, hybrid long-term care insurance covers the product landscape.

Step one: certification

Nothing happens until a licensed health care practitioner certifies that you are chronically ill. On a qualified rider, the definition comes from 26 U.S.C. §7702B(c)(2), and there are two ways to meet it.

  • You cannot perform, without substantial assistance from another person, at least 2 of the 6 activities of daily living for a period of at least 90 days, because of a loss of functional capacity.
  • Or you require substantial supervision to protect you from threats to health and safety because of severe cognitive impairment.

The six activities named in the statute are eating, toileting, transferring, bathing, dressing and continence. A contract's own test must take at least 5 of the 6 into account, and the certification must have been made within the preceding 12 months. The statute also allows a similar level of disability determined under Treasury regulations.

Two practical consequences. First, this is an assessment, not a receipt — the claim starts with someone evaluating the person, not with a bill. Second, the 90-day expectation is about how long the need is expected to last, which is why a serious but short-lived episode may not open the rider at all. If the rider on the policy is a §101(g) chronic illness rider rather than a §7702B one, the bar is usually different again: those generally require the condition to be permanent. Which one you hold changes the answer, and we explain how to tell on long-term care rider versus chronic illness rider.

Step two: the waiting period

Contracts set a waiting period — often called an elimination period — between the day you qualify and the day benefits begin. You pay for care during it. The length is written into your contract and differs from one company to another, so read yours rather than assuming. Think of it as a deductible measured in time instead of dollars. It is also the reason a claim and a payment are two different dates.

Step three: how much comes out

Riders put a ceiling on what can be drawn in a month, and the ceiling is usually expressed as a share of the policy's death benefit, written into the contract. Within that ceiling the rider pays one of two ways:

  • Reimbursement. You submit the bills for qualified long-term care services and the rider pays what they actually cost, up to the monthly maximum. Spend less, draw less.
  • Per diem, or indemnity. The rider pays a set amount for each day you are eligible, whatever the care actually cost. Simpler to administer, and it does not care whether your daughter or an agency provides the help.

The difference matters most at home. A reimbursement design pays against invoices, which is straightforward when you are paying a $35-an-hour non-medical caregiver — the 2025 CareScout national median — and awkward when family is providing the care unpaid. A per diem design pays regardless. Neither is better in the abstract; they suit different households.

Step four: tax, and the number everyone gets wrong

Per diem payments from a qualified long-term care contract are limited by the Code. For calendar year 2026 the IRS per diem limitation under §7702B(d)(4) is $430 per day — Revenue Procedure 2025-32, §3.62. The 2025 figure was $420, under Revenue Procedure 2024-40.

You will see $440 quoted for 2026 on a number of websites. It is wrong. You will also see $175, which is the statute's own base amount from 1997, indexed for inflation ever since under §7702B(d)(5) — quoting it as a current limit is wrong for the opposite reason.

Mechanically, §7702B(d)(2) applies the limit to the excess of the greater of the per diem amount or your actual qualified long-term care costs, over the reimbursements you received. Amounts above it are includible in gross income. On a §101(g) chronic illness rider the treatment is framed differently again: it is tax-favoured when it reimburses qualified costs, and per-diem payouts above the limit can be taxable. State the Code, then ask a professional — The Jordan Insurance Agency does not give tax advice.

Step five: what it costs your beneficiaries

This is the part that deserves to be said plainly. On almost every design, every dollar the rider pays for care reduces the death benefit. Draw heavily for several years and there may be very little left. Draw nothing and the full death benefit is paid as it always would have been. Some contracts preserve a residual death benefit even after the care benefit is exhausted; many do not. That is a contract-by-contract question and one of the first things we check.

So the honest way to describe this product is not “long-term care coverage thrown in with life insurance.” It is: you are choosing, in advance, to let your own death benefit be spent on your own care if you need it. For a lot of households that is exactly the right choice. It is still a choice, and it should be made with the family who would otherwise receive the money.

What this is being measured against

The scale of the problem, from the U.S. Department of Health and Human Services 2022 research brief: 56% of Americans turning 65 today will develop a disability serious enough to need long-term services and supports, for an average of 3.1 years, and 22% will need help for more than five years. The average future cost per person turning 65 is put at $120,900 in today's dollars, of which families pay 37% out of pocket, averaging $44,800.

And the price of the care itself, from the 2025 CareScout survey released in March 2026: $355 a day for a private nursing home room, which is $129,575 a year; $6,200 a month for assisted living; $95 a day for adult day health care. Medicare does not pay for long-term custodial care when help with daily living is the only care needed — the detail is on whether Medicare covers long-term care, and it is the misconception that costs families the most.

Can you add a rider to the policy you already own?

Usually not. Riders are generally elected when the contract is issued, which is why the question for an existing policy is not “can I add one” but “do I already have one, and what does it say?” A surprising number of people are carrying a chronic illness rider they have never read. Bring the policy to a licensed agent and ask which section it is written under, what the monthly maximum is, and whether there is a residual death benefit.

If the reason you are reading this is that a standalone policy is out of reach, go to what to do if you cannot qualify for long-term care insurance. Underwriting for a standalone policy is strict, and a rider is sometimes available where a standalone policy is not — but a rider is still underwritten, and nobody can tell you in advance that you will be approved.

How The Jordan Insurance Agency helps

On this product our job is to read the contract out loud. Which Code section the rider is filed under; what the contract's own activities-of-daily-living test requires; how long the waiting period runs; what the monthly maximum is and how it is calculated; whether benefits are reimbursed or paid per diem; and what, if anything, your beneficiaries still receive after a long claim. Then we compare that same set of answers across several companies, because this is a product where the wording does the work. We will never tell you that you qualify — underwriting decides that — and we would rather talk you out of the wrong contract than into any contract.

The Jordan Insurance Agency is an independent, licensed insurance agency based at 3540 Toringdon Way, Suite 200, Charlotte, NC 28277. You can reach us at (704) 926-7565, Monday through Friday, 9:00 AM to 5:00 PM Eastern. Because we are independent we represent multiple carriers rather than one, and we read the contract language rather than the brochure. A consultation with a licensed agent is free.