What’s new with Chronic and Critical Illness Riders?

They enhanced it, allowing policyholders to pull out up to 80% of their life insurance death benefit while they’re still alive.

Are there specific conditions that need to be met in order to pull out up to 80%?

Yes, there are. Previously, 10 years ago, the old rider required a nursing home stay for the benefits to be paid out. You had to be in a nursing home for 90 days. But with the new rider, some companies said, "Hey, we’re not going to require a nursing home stay anymore." They also added a cognitive impairment trigger. So, if you’re severely cognitively impaired, that would also trigger the benefits.

Now, some companies don’t offer this rider at all, but about half of them do. Of those, probably 25% require you to select it, and 25% require you to pay for it. There are a lot of different variations on how these riders are offered on the policy, but the main point is that you can access the death benefit while you’re still alive.

So, they eliminated the nursing home requirement...

What else changed with this new form of the rider?

The biggest change is that if you can’t perform two of six activities of daily living, that would trigger the benefit. Or, if you have a severe cognitive impairment, that would also trigger the benefit. These new triggers were added, but the nursing home stay requirement is gone. This was a major improvement to the policies.



How long do you have to be unable to perform daily living activities?

The requirement is 90 days. So, if you can’t perform two of the six activities of daily living for 90 days, then you qualify. Once you qualify, you can pull out up to 80% of the death benefit, and this is on a yearly basis.

This is particularly beneficial if you have a chronic illness and need home health care, nursing home care, or any other type of care. You can access funds through your life insurance policy, so you don’t have to dip into your savings, 401(k), or borrow money. It provides another resource to tap into.

How many people would need a policy like this?

A recent study from the Urban Institute, done in 2019, found that 70% of people 65 or older had a need for long-term care benefits. 70%!

It also showed that about 45-48% of people actually received benefits for some type of long-term care need. So, from age 65 until death, there’s about a 50/50 chance that people will collect benefits for some type of long-term care need.

What’s important about this rider is that it’s often at no cost. You can add it to your policy, and you automatically have access to those death benefits if you need them. We’ve already established that about 70% of people over 65 are going to need some form of long-term care, and about 48% are currently collecting benefits. That number could increase as these policies become more widespread.

Do all life insurance policies today offer chronic illness riders?

No, unfortunately, not all of them do. From what I’ve seen, about 50% of companies offer it. Maybe 25% of those include it automatically on the policy, while 25% require you to pay for it or select it as an option. These riders aren’t all the same, and some companies have different requirements.

Some companies make it simple: if you can’t perform two out of six activities of daily living, you qualify for up to 80% of your death benefit. Some go as high as 100%. But other companies have different requirements. For example, one condition might have to be permanent, or they may have different variations in how much you can access from the policy. Some companies will go up to 80%, others 100%. It really depends on the company and the policy, so you need to analyze it carefully and choose the one that works best for you.

How do you know if your current life insurance policy has a chronic illness rider?

The best way is to have it reviewed by a life insurance agent familiar with this type of thing. Here’s the tricky part: if you have a policy that’s older than 10 years, it likely won’t have this rider, or it’ll have the older form that requires additional qualifications.

If your policy doesn’t have it, or if you have a newer policy that doesn’t have a favorable rider, you can exchange that policy for a new one that does. You’ll have to qualify for it, but if you’re in good health, the newer policies usually offer better benefits. You can even exchange the cash value from your old policy to a new one without any tax consequences.

Do chronic illness riders cost the same as long-term care riders?

No, long-term care riders typically cost around 5-10% of the premium. For example, if your premium is a certain amount, you’ll pay an additional 5-10% for the long-term care rider. The benefit of a long-term care rider is that you can select a specific daily amount to be paid out, like 2% or 4% of the death benefit.

However, the downside is that you have to pay for it. The Chronic and Critical Illness Rider is generally at no cost, but the payout amount depends on your life expectancy when the trigger happens. The downside compared to long-term care riders is that you don’t have a guaranteed daily amount, but the upside is that if you have a large enough policy, like $500,000, you can pull out up to 80%.

Are these riders available or approved in all states?

Ideally, they’d like to get them approved in all 50 states, but unfortunately, it doesn’t work that way. They have to go state by state for approval. When they introduce a rider with additional benefits, they have to submit it to each state for approval.

For example, here in California, the process is tougher. While some states might approve a rider quickly, California can take years longer and may require modifications. So, these riders aren’t approved in all states, and the triggers might differ based on state requirements.

Can you explore other options if your policy doesn’t have a chronic illness rider?

It depends on your health. The challenge is that if you want to upgrade to another company, or even the same company, they might require you to take a medical exam. Some companies won’t let you add the rider at all, or they’ll impose a moratorium where you must add it within a certain period.

If you’ve had a serious health issue, like a heart attack, you might not be able to upgrade. But if you’re healthy, you should definitely explore upgrading your policy and getting one of these riders that allow you to access at least 80% of the death benefit. Some go up to 100%. It’s worth looking into different options and getting a policy with this rider, especially given the 70% chance of needing long-term care from age 65 onwards.

Conclusion

The Chronic and Critical Illness Rider has made life insurance policies much more flexible, allowing policyholders to access their death benefits while still alive. This improvement offers a safety net for those facing chronic illnesses or cognitive impairments, eliminating the old nursing home requirement. With a 70% chance of needing long-term care after age 65, having a policy with this rider can make a significant difference in your financial planning.

If you found this information helpful, consider reaching out to Biaggi Life in Santa Rosa, California, for personalized insurance options. Whether it's employee insurance for life and health or long-term care, or personalized life insurance through an insurance broker, Biaggi Life can guide you in choosing the best coverage for your needs.