Getting The Most Out of Life Insurance: The Chronic Illness Rider Option


Many individuals with a chronic illness or severe cognitive impairment struggle with the activities of daily living while receiving no return on their expensive life insurance policy and no relief from payment pressure by life insurance companies and health care providers. Often loved ones are not able to provide adequate financial assistance for people with a chronic condition either. However, one option that might help life insurance recipients who have a chronic condition benefit from their insurance while they are still living is by choosing a chronic illness rider option. This article will lead readers through the details of this option, how to determine eligibility, and what benefits it provides with the policyholder. 

What Insurers Offer a Chronic Illness Riders Option?

This option is fairly common among life insurance providers. It has become a popular option for people living under long-term care and even with some people living with a terminal illness with a longer prognosis. Due to its increasing availability and the increased benefits it offers over other permanent life insurance policy programs and even over long-term care insurance, many policy owners have selected this option.

What are the qualifying requirements?

In order to qualify as a chronic illness rider under a given life insurance policy, a policyholder must have been diagnosed with one or more of a set of qualifying illnesses determined by their insurance company.  These are the types of illnesses that cause severe cognitive impairment or other health issues, like those requiring toileting care, and that require additional cost beyond normal income to pay for. Such extra long-term care costs may be covered by the increased benefits that accompany the chronic illness rider option.

What are the available benefits?

Individuals who choose to become chronic illness riders on their life insurance policy will receive benefits that will help them profit more from their policy while they are still alive. These benefits are distinct from those of many life insurance products, which concentrate benefits more to loved ones of policyholders. 

Specifically, the death benefits of chronic illness riders are converted into life benefits, which life insurance riders could use while living. For instance, a policyholder who has a terminal illness with a one-year prognosis and a million dollar life insurance policy could receive hundreds of thousands of dollars in life benefits if they became a chronic illness rider. 

What Are Living Benefits for Chronic Illness Riders Used For?

Often, the life benefit payouts  received by chronic illness life insurance riders are used to pay for such costs as nursing homes or other care for critical illnesses. Such benefits come as a relief to universal life insurance policyholders, many of whom never expected to be able to turn their death benefits into payment for their own treatment. 

Things to consider before making a choice on Chronic Illness riding

Life insurance providers recommend that their policyholders examine their financial situation closely before opting to become a chronic illness rider. Choosing this option may affect their eligibility for other insurance policies, or their medicaid and medicare rates.

 In addition, receiving life benefits under a CIR option will decrease the value of death benefits received by loved ones. If a policyholder already has the savings needed to pay their medical and living expenses, they may choose to preserve the value of their policy for their loved ones in the form of larger death benefits. If policyholders do need more financial support, they should also research how to get such benefits by other means. 

For instance, parts A and B of Medicare will cover most hospital and medical expenses. Although for such expenses as for nursing homes and long-term care services, a life benefit payout may be the best choice. Nonetheless it is important to remember that a portion of the death benefit, when a policyholder chooses to become a chronic illness rider, will be diverted to become life benefits. These types of accelerated death, or ‘life’ benefits provide an added option that will work for many policyholders, but not all. 

Tax and Financial Implications 

Thankfully, the life benefit payouts received by chronic illness riders generally do not qualify as income. So current recipients, or policyholders consider this option, shouldn’t worry about losing their life insurance money to taxation. Since a typical life insurance policy’s death benefit does not get taxed, taxation on life benefits would dissuade many from opting for chronic illness riding.

The biggest implication for chronic illness riders is that there will be little or no money given to the family by insurance providers in the form of death benefits. So it is important to make sure the finances of the policy holder’s loved ones are not dependent on the full cash value of their given life insurance, since benefit payment amounts to loved ones are reduced for Chronic Illness riders.

The Payout Process 

Lump sum life benefit payouts for life insurance policyholders are fairly rare. Usually, chronic illness riders (as well as ltc riders) receive reimbursements for the care their illnesses require. For instance, reimbursements could be paid for at-home nursing services. In this case, the benefit amount varies with the cost of such services as well as with the value of the given life insurance policy. 

Alternatives: Health Insurance and LTC 

Of course opting for chronic illness riding may still not provide people with certain illnesses the assistant they need in terms of payouts. For this reason, some insurance companies recommend that people access additional health insurance through their or a loved one’s employer. Alternatively, the long-term care rider life insurance option is another way policyholders could access additional funds. This program also pays care costs for people with certain illnesses recognized by insurance providers. This is the case for both term life insurance as well as whole life insurance policyholders. 

Life Insurance for Chronic Illness Riders: Conclusion

If the activities of daily living as well as managing an illness are too expensive for life insurance policyholders, they may be eligible to turn a portion of their death benefit into a life benefit (accelerated death benefit) that they could use. These benefits could help them pay for the increased costs of living with a chronic illness. After reading this article, policyholders should have a good understanding of what chronic illness riding entails. 

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Q: How do I add a chronic illness rider to my life insurance policy?

A: Most insurance companies have the option to add a chronic illness rider to your life insurance policy. You will need to consult your insurance company if you are interested in adding the rider.

Q: What are the underwriting requirements for adding a chronic illness rider?

A: Your insurance company may ask you questions regarding your health and medical history before they add a chronic illness rider to your life insurance policy. 

Q: How long will a chronic illness rider remain valid?

A: A chronic illness rider usually remains valid till the policy owner is 80, but the validity may differ depending on your insurance company. 

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