Long-Term Care Riders vs. Chronic Illness Riders on Life Insurance: 5 Key Points to Consider

It’s a burning question for many people: “How will I cover my health care and other expenses in retirement, especially if I suffer a debilitating chronic illness or have to pay for extended and pricey long-term care costs?”The available options, among others, include long-term care (LTC) riders on life insurance and chronic illness (CI) riders on life insurance. These may be of interest to people who find stand-alone long-term care insurance policies too expensive or restrictive. And in many cases, CI riders, in particular, may be the best choice to provide access to cash while living.Following are 5 key points to consider when reviewing these riders on life insurance.

1. Reimbursement vs. Indemnity Design

Two primary types of rider design exist: the reimbursement model and the indemnity model.  With the reimbursement design of many LTC riders:  

  • A benefit is available if the policy requirements have been met and the policy holder has paid for an eligible service.

  • The benefit may be as much as the insured’s total costs, within a predetermined maximum. However, the insured first must incur expenses and the receipts must be submitted for review and payment.
  • In some cases, only the care provider, not the insured, can receive payment.

With the indemnity design of all CI riders and some LTC riders: The insured receives a benefit after fulfilling the requirements of his or her contract. The person doesn’t have to use the payout to cover direct costs of the chronic illness. The benefit can be used for any expense, to help make up for lost wages or to supplement personal savings. The indemnity design, therefore, reflects the need for flexibility. It offers the insured access to the benefit when he or she is medically certified as eligible under the rider’s terms. Further, an indemnity design offers payment of the entire monthly benefit for the whole time the insured qualifies. In contrast, products based on a reimbursement structure pay only for the eligible monthly expenses incurred. If that total is less than the insured’s monthly benefit, the insured likely won’t receive the maximum monthly benefit.

2. Permanency Requirements

For payout, which occurs as an acceleration of the life insurance policy death benefit and reduces the death benefit accordingly, most CI riders on life insurance historically have required – like LTC riders – that the insured’s qualifying condition be certified as permanent by a licensed medical practitioner. But recent innovation in the life insurance market has made it possible to purchase a CI rider that carries no permanency mandate.

3. Protection Features

LTC riders are required to have specific consumer protection provisions. These are designed to help keep the insurance policy and the rider from lapsing due to unintentionally missed payments (in the case of an uninsured who develops a severe cognitive impairment). They’re also designed to permit a lapsed policy to be reinstated without additional underwriting.Although CI riders are not required to include such provisions, some CI riders do offer them. For reinstatement, conditions such as a time limit typically exist and proof that the insured’s condition caused the lapse likely will be needed.

4. Payout Methods

When reviewing LTC riders and CI riders, note that a variety of CI rider payout methods exist. In the interest of brevity, this blog post won’t go into detail, but take the time to review life insurance carrier resources that describe the discounted death benefit method, the lien method, and the dollar-for-dollar acceleration method.

5. Policy Premium Waivers

Now that some CI riders no longer have a permanency requirement, it’s vital to understand whether premium payments still will be required if an insured comes off claim. If the policy premiums aren’t paid while the insured is on claim and the rider doesn’t offer a waiver of charges, the policy holder may owe all missed charges assessed during the claim. This could result in the need for a very substantial premium to keep the policy in force. However, some CI riders have a feature through which all policy charges are waived while the insured is on claim.

Learn More

While a CI rider on a life insurance policy may be precisely what some clients need, others may want to consider different types of riders, as well – for example, to address financial needs that arise from a critical illness (such as a heart attack, stroke or invasive cancer, among other contingencies) or longevity. The more you know about available riders on life insurance and how newer offerings are designed to work, the more insight you have at hand to help with determining the most appropriate choice.For more information about available solutions. For more information, call us 1-877-717-7234 or email advisors@pcfginsurance.com

Life Insurance You Don’t Have To Die To Use: An “Asset-protector” Package Enhances Flexibility

For the first time in the life insurance industry, we're able to tell clients something they’ve never heard before: “If you don’t die prematurely, you may be able to spend your entire death benefit on virtually anything you want.”Because of this sea change in the way life insurance death benefits can be accessed, clients have the opportunity to view their life insurance policy more like an asset than an expense. That’s the concept that’s revolutionizing the life insurance industry. An innovative asset protector package has the potential to help increase clients’ financial security during retirement.

Chronic Illness Protection

Keep in mind that for many people, the biggest risk to their assets during retirement is a significant illness that would require expensive care. This could result from a physical problem, such as a debilitating stroke, or from a cognitive impairment, such as Alzheimer’s Disease.To help protect assets from the devastating financial impact of these types of conditions, clients may be able to leverage a chronic illness rider that’s included or available with many permanent life insurance policies. If clients meet the rider’s criteria, they can access their life insurance policy’s death benefit – while they’re still alive – to pay

for their health care or other expenses and help preserve their retirement assets for their surviving spouse. The access to cash value in the policy is available through an acceleration of the death benefit, although with a corresponding reduction in the benefit.If clients live to age 85 or beyond and don’t suffer a chronic illness or a cognitive impairment, their financial concerns may change again. They may be more concerned about having sufficient income for the rest of their retirement. The solution is longevity insurance.

Longevity Protection

A longevity rider on a life insurance policy provides that when a client reaches the age specified in the contract (for example, age 85), he or she can begin receiving a percentage of the death benefit (for example, 10 percent) each year for a specified number of years, such as 10.With a $250,000 policy, that could mean access to an additional $25,000 per year. With a $1 million death benefit, the available sum may be $100,000 per year for 10 years. As with a chronic illness rider, the access to cash value in the policy is through an acceleration of the death benefit that reduces the death benefit accordingly. But imagine what having “life insurance you don’t have to die to use” could do for clients’ financial security when their retirement portfolio may be straining to generate the retirement income they need.

A Multipurpose Solution

Ultimately, whether clients are most concerned about dying too soon, living too long or getting sick along the way, an asset protector package – comprised of a life insurance policy, a chronic illness rider and a longevity rider – is designed to offer the flexibility to help clients achieve their financial goals. For more information about asset protector packages,

Click here