In the following article we will break down the differences between a Long Term Care Rider vs Chronic Illness Rider. The differences are subtle, yet important to understand so you can formulate the right plan for you from among the best long-term care insurance companies.
We will also address the common objections we get regarding both riders, and towards long term care insurance in general. If you have not taken the steps to protect your wealth from the potential threat of long term care costs, this article is for you.
Life Insurance with Long Term Care Rider or Chronic Illness Rider
Fidelity Investments reports that the average couple that retires at age 65 can expect to pay approximately $240,000 in medical expenses during retirement. Keep that number in mind, because Fidelity also reported that only 20% of workers over the age of fifty-five have managed to set aside $250,000 or more for retirement. Do you see the problem? Let me spell it out.
80% of the population over 55 has less money saved for retirement than they will likely need to cover their medical expenses alone.
That’s bad. But it gets worse. That number ($240,000) doesn’t include Long Term Care costs. And of course it doesn’t include rent, food, gas, utility costs, or that sweet vacation to visit the children and grandchildren.
Below we discuss two solutions to the problem that are available to almost everyone. A Long Term Care Rider and a Chronic Illness Rider can be be added to a cash value life insurance policy and provide financing options for the medical costs that will come during retirement.
How Does a Long Term Care Rider or Chronic Illness Rider Work?
Years ago the life insurance companies started adding terminal illness riders to their policies at no extra charge. These accelerated benefit riders would give a portion of the death benefit to the policy owner prior to the death of the insured, based on the requirement that the insured was terminally ill with less than 12 months to live. In other words, the insured was likely to die soon, and so a portion of the death benefit was given in advance to make the final months more tolerable.
This living benefits rider is called an “accelerated death benefit” rider, because it allows the death benefit to be — that’s right — accelerated. It is a wonderful thing to have when a person is terminally ill. For some it provides the money to go on one last vacation, or to visit family, or to provide gifts to grandchildren.
These accelerated death benefits became a selling point, and others were added. The Long Term Care rider and the Chronic Illness rider are both accelerated death benefit riders. They allow the insured to gain access to their death benefit prior to death. In some cases many years prior to death.
There are typically two types of LTC riders on the market. Traditional long-term care insurance policies and asset based long-term care insurance policies.
There are advantages and disadvantages to both, depending on your financial situation and your planning needs.
Long-Term Care Insurance Policies
A stand alone long-term care insurance policy is separate from life insurance. These stand alone policies offer more flexibility than hybrid long-term care insurance. If you are looking for the best long term care insurance possible, a stand alone policy is usually the best choice.
However, the one problem that needs to be addressed with this product is the increasing premiums associated with the stand alone LTCI policies. Although older policies are most in danger of having the insurance company raise the premiums, newly issued policies still do not allow for a premium rate lock. This uncertainty of rising premium payments finds a remedy with asset-based long term care insurance.
Asset-Based Long Term Care Insurance
The asset-based long term care policies are also referred to as a combination policy or hybrid policy because they are structured to offer two distinctions. They offer an Accelerated Death Benefit – When you meet the criteria and file your long term care insurance claim, you are pulling funds from your death benefit.
The second distinction is the Extended Death Benefit – Once the death benefit has been fully exhausted (paid out), the policy will optionally continue to pay an extended benefit.
Each company offers different benefit period lengths, elimination periods, and maximum benefit amounts. There are also some companies that offer a cash indemnity benefit policy and some that offer a reimbursement benefit policy.
The one distinct advantage between stand alone LTCI and LTCI+LIFE insurance policies are the hybrid long term care life insurance policies provide fixed premiums. Typically you can choose single premium universal life insurance or whole life insurance, that build cash value, as your asset based vehicle. You can also choose 5, 7, and 10 pay limited pay life insurance with some companies.
Alternatively, a life insurance company may also offer hybrid annuities. With an annuity, you can add a long term care rider that works in the same way the rider would when connected to a life insurance policy.
Chronic Illness Accelerated Benefit Rider
Life insurance with chronic illness rider provides fixed premium payment with an additional rider that can be accessed if you are diagnosed with a qualifying chronic illness. The cash indemnity income benefit is an accelerated benefit derived from your policy’s death benefit. Depending on the insurance company, you can access virtually all your death benefit in advance if you qualify for the chronic illness rider.
Long Term Care Rider vs Chronic Illness Rider Comparison Table
| Life Insurance with Living Benefit Rider | Long Term Care Rider | Chronic Illness Rider |
|---|---|---|
| What is the Benefit? | Accelerated benefit via advancement from death benefit that may be further supplemented by an extension of benefits rider. | Pays an accelerated benefit which is an advancement of the death benefit |
| Eligibility Requirements | Licensed health professional certifies insured cannot perform 2 of 6 ADLs or severe cognitive impairment, both temporary and permanent | Licensed health professional certifies insured cannot perform 2 of 6 ADLs for last 90 days or severe cognitive impairment with likely no potential for recovery |
| Benefit Payment | Reimbursement or Cash Indemnity | Cash Indemnity |
| Benefit Payment Requirement | May require evidence of actual expenses paid or may be used for any purpose | Generally, can be used for any purpose |
| Is Benefit Payment Taxed?* | Typically not taxable (see IRC Section7702B) | Typically not taxable (see IRC Section 101g), but may be taxed if per diem limit is exceeded |
| Elimination Period | Varies but typically 0, 90, 180 or 365 days | Varies but typically 0-90 days |
| Benefit Amount | 2% to 4% of DB or IRS Per Diem Limits with potential increasing benefits over time due to inflation protection rider, up to full death benefit, with additional extension of benefits possible | Generally based on lesser of 2% to 4% of policy DB or IRS per diem limits |
| Return of Premium | Typically included. 100% ROP after specified period. | Not typically included. |
| Increasing Death Benefit? | Some insurers allow for Option B, increasing death benefit | Some insurers allow for Option B, increasing death benefit |
| Inflation Protection Rider | Included at an additional cost | Not Available |
Top 10 Best Companies offering Long Term Care Riders and Chronic Illness Riders
The following table of companies is our current list of insurers that provide either long term care or chronic illness riders. There is no one best company. The right company for you will be based on your specific goals and objectives.
| Company | Type of Rider |
|---|---|
| AIG | Chronic Illness |
| AXA Equitable | Long Term Care |
| Lincoln National | Chronic Illness Long Term Care |
| Life Insurance of the Southwest | Chronic Illness |
| MassMutual | Long Term Care |
| Minnesota Life | Long Term Care |
| North American | Chronic Illness |
| Pacific Life | Chronic Illness |
| Penn Mutual | Chronic Illness |
| Principal | Chronic Illness |
| Prudential | Chronic Illness |
| State Life | Long Term Care |
| Voya | Chronic Illness |
What is Long Term Care?
Long-term care (LTC) is a combination of services which provide the medical and non-medical needs of people with a chronic illness or disability who cannot care for themselves for a long period of time. Oddly enough, the reason LTC is so expensive is not because it pays for highly skilled medical professionals. The opposite is typically true.
See: What is long-term care insurance?
LTC is usually paying for rather unskilled care providers, but it is costly because the care needs to be provided around the clock – seven days a week, such as in-home care, assisted living facility or nursing home. Qualifications for long term care benefits usually necessitate being unable to do two of the six basic tasks for everyday living. These tasks are called activities of daily living (ADLs).
ADLs (Activities of Daily Living)
- Feeding.
- Toileting.
- Bathing.
- Selecting proper attire (Dressing).
- Maintaining continence.
- Walking and transferring.
In other words, if two of the above ADLs are something you can’t do for a long period of time (typically 90 days), you would qualify for long-term care insurance benefits.
In addition to the ADLs there are other “instrumental” activities of daily living (IADLs). These are the complex skills required to live an independent life. It’s possible to joke and say that many of our friends have likely never known how to do some of these things. But the point remains, these IADLs are required for living on your own.
IADLs (Instrumental Activities of Daily Living)
- Managing finances
- Handling transportation (public transit or personal driving)
- Shopping
- Preparing meals
- Using the telephone
- Managing medications
- Housework and basic home maintenance
For many patients with serious cognitive impairment, such as Dementia or Alzheimer’s Disease, the IADLs are an assessment that determines the need for LTC, even though they may not have any problem with the ADLs. Specifically, if your cognitive impairment is so severe that you are seen as a potential danger to yourself, you will qualify for your long term care rider benefits.
What is a Chronic Illness?
A chronic condition or illness is one that lasts a long time, typically longer than 3 months, and has no medical cure and does not disappear on its own.
Examples of chronic illness include:
- Heart disease
- Stroke
- Diabetes
- Arthritis
- Kidney disease
- Multiple sclerosis
- HIV/AIDS
The ideal situation for anyone looking for a LTC rider or Chronic Illness rider is to apply before you have the need for the insurance policy. Once the illness or mental condition arises it is much more difficult to get Long term care insurance coverage.
However, it is important to note that those that have a life insurance policy can frequently acquire the rider without undergoing a medical exam – a phone interview is usually all that is needed.
And there is a growing trend among life insurance companies where the chronic illness accelerated benefits rider is already included in newly issued policies in states where the rider is approved.
Life Insurance with Long-Term Care and Chronic Illness Rider Quotes
Long-term care insurance costs vary based on the company and policy you are considering. If you are interested in long term care life insurance quotes or life insurance with chronic illness rider quotes, please enter your information below or give us a call today. We can create illustrations for you based on your specific need, goals and objectives.
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Medicaid Will Pay For It…or will it?
Don’t count on Medicaid if you anticipate enjoying your retirement to any degree. It’s really an option of last resort. The financial requirements for eligibility are strict.
There are some exceptions, but in general an individual must have less than $2000 in countable assets before Medicaid will pay for LTC.
And married couples living in the same house are only allowed $3000 in countable assets. This means that you will have to sell or liquidate many of your assets before Medicaid will pay for your LTC expenses.
Now it’s true that your primary residence and one car are not considered countable assets. But if you own any other income producing assets such as real estate, have more than one car, have life insurance valued at over $1,500, or if you have stocks and bonds of any amount, you won’t get any help from Medicaid until those assets are liquidated.
FAQS on LTC Riders or Chronic Illness Riders
- I doubt I’ll qualify with my poor health.
- Often, asset-based LTC riders require a phone interview without a medical exam.
- I’m sure the long term care insurance premiums will increase and I won’t be able to afford it.
- Asset-based long term care riders can be purchased with a single premium, so you don’t ever have to make another payment. In other cases there are premiums that are guaranteed to remain the same. Certain companies offer 5 pay, 7 pay, 10 pay limited pay life insurance policies, so after the long term care life insurance premium payment period, you no longer need to make premium payments.
- I doubt I’ll need it.
- 68% of individuals over age 65 will become cognitively impaired or unable to complete at least two “activities of daily living” (ADLs). About 7 our of 10 will need some type of long term care insurance.
- I’ll lose it if I don’t use it.
- Not true. With asset-based LTC the insured either uses it, or passes the benefit along to the beneficiaries with the rest of the death benefit. Many companies also offer a return of premium option that allows you to terminate the policy and get all your premiums back.
- I would rather have a LTC policy that is separate from my life insurance so I can have benefits for life if needed.
- As mentioned earlier, there are combo, or hybrid long term care insurance policies that do exactly what is being asked. They provide LTC benefits even after the death benefit has been completely exhausted.
- I want a policy that covers me and my spouse and my life insurance policy is only for me.
- There are riders that will specifically add a spouse to the long-term care insurance coverage even if the underlying life insurance policy is insuring just one person.
Final Thoughts on LTC Riders and Chronic Illness Riders
The statistics don’t lie, most people will need long term care services as they age. And yet most people are unprepared.
The LTC rider or Chronic Illness rider options are a significant way to safeguard your family from financial ruin in the event of a serious illness.
These riders also provide wealth and legacy preservation, so all your assets you diligently created in life are not depleted in the end.
Insurance & Estates is committed to connecting you with the best company and the best features, based on your unique need and goal. If you want to talk about your long term care insurance options, please contact us today to speak to a financial professional who can help you put together a strategy for your long term care needs.
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Hello, it is late so I haven’t been able to really get into this to read. I will read it tomorrow & maybe send it to an agent friend of mine. I have Mitochondrial Myopathy. There is NO cure for this & it will kill me. I am in my 70’s. This disease attacks the cells in UR body & kills them. I have an horrible time with muscle & joint pain. I have lost my hearing, sight, sense osf smell & taste, & I’m on O2. I still very short of breath. I really need some Ins. help. Last Nov. I had to have surgery to remove my Galbladder. Who knows if it was attact by the disease I have. I really need some help getting funded for help Thank U, Ms. Spencer
Hi Dorothy,
Sorry to hear about your condition. We will have an agent reach out to you shortly. I also did a quick search on your condition and found this article on Pub Med. Apparently, the ketogenic diet has been shown to slow down the progression of the disease in mice. Who knows how that will translate to humans but I thought I would bring it to your attention in case it may help you in any way. We are not doctors, just trying to do what’s right and help who we can, anyway we can.
All the best,
I&E
I enjoyed visiting your webiste. I rarely leave comments,
but
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Thank you Ruth, awesome feedback!
Best,
Steve Gibbs for I&E
I have recently been looking into hybrid ltc plans as my health situation doesn’t qualify me for standalone policies. I am concerned about the critical illness definition when it comes to paying out claims in these type of policies. I am being told that critical illness is one that will last 90 days or more, however, this article added another extended definition with the words “and has no medical cure and does not disappear on its own”. Is this what hybrid plans are all using in reality to base whether or not they will pay claims”
Hello Marge, thanks for reading and commenting. That language in the article actually refers to a general definition of “chronic” medical condition vs. “critical” and this is a big distinction in the world of medical treatment because long term care coverage is generally for chronic long term conditions whereas other medical insurance and Medicare is typically for critical care (such as injuries and life threatening emergencies requiring emergency procedures. So the short answer is yes, hybrid plans would use this kind of standard. However, I suggest you connect with Jason Herring for more specific information at jason@insuranceandestates.com.
Best, Steve Gibbs, for I&E
Good article, except you left out the most important part, which is the legal definition of what constitutes an acceptable claim on many critical illness policies and riders. They have a MUCH MORE NARROW RANGE OF ACCEPTABLE ILLNESSES AND DOCTOR CERTIFICATIONS THAN A QUALIFIED LONG TERM CARE POLICY. That is why these critical illness rider and policies are NOT tax deductible as the IRS has not found that they are true long term care policies under Section 7702 (b) of the code. A warning should be posted on here that anyone who buys a critical illness policy or rider over a qualified long term care policy must take into consideration that they are more likely to NOT have a claim paid than under a qualifed long term care policy, and that the critical illness riders and policies are NOT tax deductible under section 7702(b); and that the LOSS RATIO of a qualified long term care policy is considerablly higher than a critical illness rider or policy and that a high loss ratio is actually a good thing for the consumer as a greater percent of premiums received a paid out in claims than you will find on cricial illness riders or policies.
Hello Patrick, thanks for your comment although it warrants some clarification and appears to be a bit biased from a traditional long term care insurance perspective. First, your reference a “critical” illness is potentially misleading given the fact that most definitions for authorizing coverage in my experience are based upon finding a “chronic” vs. “critical” condition. These riders as well as traditional long term care coverage is generally for “chronic” care (not critical care) meaning a long term medical condition which lasts generally over 90 days AND is debilitating resulting in an inability to perform at least 2 of 6 (or 7) defined activities of daily living. Yes, the types of life insurance policy riders and definitions can differ between companies. So, I do agree it is very important for folks to read policies and disclosures very carefully. Yes I do agree with your point as to tax deductability and that traditional long term care insurance may be more comprehensive (depending on the company). However, the benefits are often outweighed by the costs and inflexibility. Yes tax deductability is a top benefit of traditional long term care policies, particularly now given the tax law changes. The downside of a traditional long term care policy as we’ve seen demonstrated in the market is of course the likelihood of increasing premiums. Anyway, it is all good to inspire a careful look at what is and isn’t covered and guaranteed in the coverage being proposed.
Best, Steve Gibbs, for I&E
I have some serious health issues and will need to activate my policy. The policy number is . Please call me at your convenience.
Dorel Elliott
Dorel, sometimes people get us confused with their insurance company because we write articles about many. We recommend you go directly to the company’s website or if you worked with an agent then to them directly.
Best, I&E
Excellent article. Very well written.
Thank you Kelly, nice to hear great feedback:)
Best, Steve Gibbs for I&E