Chronic Illness vs. Long-Term Care Riders on Life Insurance Policies


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Chronic Illness vs. Long-Term Care (LTC) Riders

What do these riders do?

They help pay for expenses when you become chronically ill and you meet certain conditions. They’re going to be added to permanent life insurance policies that allow you to access some of the death benefit while you’re still living.

How are these riders structured?

Both types of chronic illness and long-term care (LTC) riders are good, they’re just different. Some of the riders allow you to accelerate the entire death benefit. If you have a $300,000 death benefit, you are eligible to accelerate the entire $300,000 for chronic illness care and if you don’t use the entire amount for chronic illness care, then any remainder amount that’s unused is paid out as a benefit as a death benefit to the beneficiaries. It’s known and predictable; a defined benefit.

Other types of riders only allow you to accelerate a fraction of the death benefit: 30%, 50%, 70%. It could be more, it could be less, and it could potentially even be zero. It all depends on various factors at the time the insured goes on claim.

A rule of thumb to distinguish the difference between the riders is determining if they have upfront charges or not.

If they have an upfront charge, it will come right off the premium or as a monthly deduction from the cash value, then you have a known and predictable defined benefit, which means you can accelerate the entire death benefit for care. All the LTC riders fall into this category. Some of the chronic illness riders fall into this category. However, most of the chronic illness riders in the market today have the charges determined at the time of claim and have both the charge and the chronic illness benefit amount determined at the time of claim. This means the amount that’s eligible to be paid out for care is unknown at policy issue.

Which rider is right for you?

It depends on your situation, risk tolerance, goals, and preferences. If your primary goal is life insurance and LTC coverage is a secondary concern, then one of these riders might be a good fit for you. If your primary goal is LTC coverage, you should look at a traditional or a hybrid policy that has an extension of benefits for LTC and inflation protection.

LTC Rider

An LTC rider might be a good fit if you want a policy with known LTC monthly benefits at the time of the policy’s issuance and if you’re concerned about guaranteed tax benefits, consumer protections, for your agent having specific LTC training and continuing education. It does have that standardized language in there which can allow your condition to be permanent or temporary.

Chronic Illness Rider Upfront Charge

A chronic illness rider with an upfront separate charge might be a good fit for you if you want to know what your LTC benefits and your death benefit will be at the time of the policy’s issuance. Also, if you want your benefits to be received annually or monthly.

Chronic Illness Rider No Upfront Charge

A chronic illness rider with no upfront charge might be a good fit for someone where the client is really unhealthy and they just can’t qualify for anything else. They’ve tried the LTC rider, the upfront charge chronic illness rider, traditional and hybrid policy and they can’t get covered anywhere else. If you also are concerned about premiums, premiums are going to be lower since there’s no upfront charge for that. These are especially appealing for clients who have another priority focus such as accumulating cash value to supplement retirement income because they don’t want the drag of the additional charges.

The Bottom Line

The chronic illness and LTC riders are all valuable but should be carefully chosen based on the client’s goals, preferences, and situation. Clients should understand what they buying and agents should know what they’re selling. The last thing that we want is for a client to come to claim time and be disappointed because their benefits aren’t what they expected.

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