Many life insurance plans and annuities are competing with long-term care insurance by offering special riders attached to their policies that offer additional benefits. These riders are often called Chronic Illness, Critical Illness or Terminal Illness and promise to provide a lump sum or stream of payments should the client trigger a claim. Although many may pay a tax-free benefit under IRS 101(g), there are some differences that you need to be aware of.
Chronic Illness riders are generally triggered by a cognitive impairment or inability to perform 2 out of 6 activities of daily living. However, unlike long-term care insurance, many chronic illness riders require you to prove you won’t get better. Long-term care insurance policies cannot require this which means your claim may be paid with a long-term care policy but denied by a chronic illness rider.
Critical Care insurance is triggered by an acute medical condition such as cancer, stroke or heart attack. These policies pay in either a lump sum or equal payments over a short period of time. They are not met as extended long-term care insurance but are designed to provide gap insurance or short term coverage after a medical emergency or illness.
Terminal Illness riders are designed to accelerate a death benefit for someone who is expected to die in a short amount of time from an incurable disease.
Although all of these riders can offer meaningful benefits, they are not necessarily designed to replace long-term care insurance. When considering one of these riders, you must understand what triggers a claim and how the benefit will be paid as they all have different rules based on the provider.