Chronic Illness Riders vs. Qualified Long-Term Care Riders

While Long-Term Care Insurance may be a viable option for many, Financial Advisors are moving away from stand-alone Long-Term Care Insurance due to rate stability and the fact that the benefit is paid out to the client while living or, to their heirs at death.

Advisors are shifting to Chronic Illness Riders or Qualified Long-Term Care Riders in the planning process today, using life insurance as the funding mechanism for the client’s caregiving needs. Both riders offer many benefits and, by using this planning method, clients may elect to use their qualified plan assets or highly taxable annuities to pay for their care, allowing the death benefit to pass to the heirs tax free.

Let’s examine the difference between the two rider options:

Chronic Illness Riders

Characteristics

  • In most cases, there is no cost for the rider, however, discounting of death benefit occurs when accelerated.
  • Indemnity mode of payment allows family or friends to care for the client while still receiving proceeds.
  • There are no additional morbidity underwriting requirements to qualify.
  • Typically, table 3-4 or better automatically includes the benefit.
  • Typically no more than 2% monthly or 24% annual acceleration of the death benefit is available.
  • You can take a single or flexible premium approach.

Carriers who use the Chronic Illness Rider Model

  • North American
  • Prudential
  • Protective

Qualified Long-Term Care Riders

Characteristics

  • The client pays for the rider whether they use the benefit or not.
  • Reimbursement mode of payment is only available for qualified caregivers.
  • Additional morbidity underwriting is required, so there is a possibility that the client could be approved for life insurance but not for the LTC Rider.
  • A higher monthly LTC benefit is available even for smaller face amounts due to a 4% monthly acceleration of the death benefit.
  • You can take a single or flexible premium approach

Carriers who use the Qualified Long-Term Care Rider Model

  • John Hancock
  • Lincoln MoneyGuard

Both the Chronic Illness Rider and the Qualified Long-Term Care Rider are viable options for clients looking for a solution to help with potential Long-Term Care needs, but remember, these are planning options only available in using life insurance as the funding mechanism for those needs. I would be happy to discuss your client’s need and work with you on a plan that will meet their needs. Please feel free to contact me with any questions.

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