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Long Term Care vs. Chronic Illness Riders


Riders may be offered on universal, indexed and whole life policies.

Long term care (LTC) and chronic illness (CI) riders pay benefits as a tax-free acceleration of the life insurance death benefit via 101(g).

To qualify for a claim, the client needs to meet the basic requirements related to chronic illness. That means a physician must certify that the insured, for a period of at least 90 days, is unable to perform at least two Activities of Daily Living (ADL) or suffers from severe cognitive impairment.

There are options for single and limited payment of premiums.

But that is where the similarities end.

Most chronic illness riders require the physician certify the disability is permanent and irreversible. 

Long term care riders classified as 7702B allows temporary claims to be covered as well, so conditions such as mild strokes, orthopedic repairs, side effects of certain cancers, etc., would qualify for a LTC claim on this type policy.

Life Insurance with a Long Term Care (LTC) Rider

Advantages:

  • The full death benefit is available for the LTC benefit.
  • Any death benefit not used for LTC is returned as a tax free death benefit.
  • Policies may offer cash or reimbursement LTC benefit.
  • With cash policies, the LTC benefit can increase along with the death benefit simulating an inflation protection.

Disadvantages:

  • Premium not tax-deductible.
  • LTC benefit typically not as high as with traditional LTC policies.
  • Most do not offer inflation protection.
  • Qualifying expenses in reimbursement plans do not include the costs of home modification, medical equipment (i.e. walkers).
  • No waiver of home care options.


LTC with Chronic Illness Rider (or “accelerated death benefit for chronic illness”)

Advantages:

  • More lenient underwriting.
  • Often issued without additional premium cost.
  • Most use indemnity (or cash) payment model.

Disadvantages:

  • Most discount the death benefit disproportionally to provide the chronic illness benefit.
  • Claim typically need to be for permanent and irreversible disability.
  • Premium not tax-deductible.
  • Do not offer inflation protection.
  • Qualifying expenses in reimbursement plans do not include the costs of home modification, medical equipment (i.e. walkers).
  • No waiver of home care options.

 

Linked LTC Insurance Products

  • Linked LTC/Life products are typically a combination of an annuity, in which the premium can be returned at any time during the life of the policy, a life insurance policy that provides a death benefit and long term care insurance product providing a LTC benefit typically larger than the death benefit.  Premiums for linked products are typically paid in a single premium or over a limited number of years.