Terminal Illness and Chronic Care Rider – A Substitute for Long Term Care Insurance? Part 2
Last week I was sharing with you Mary’s story. She had been considering the purchase of a life insurance based long term care (LTC) policy to protect her against the cost of long term care. She was then shown a life insurance policy with a terminal illness and chronic care rider at a less expensive premium. Thinking that they will provide her with similar coverage for long term care, Mary asked me why she shouldn’t simply opt for the second choice.
Let’s examine this a little more closely. A big difference with the chronic care rider is that some of the riders require that the condition be a permanent one whereas other insurance companies offer riders which cover both temporary and permanent conditions. The one offered to Mary only covers permanent conditions which she did not realize until I pointed it out to her.
Life insurance with long term care benefits covers both temporary and permanent conditions. This is important since people often tap into their long term care policies more than once before reaching the stage of needing substantial care for the rest of their lives. That may not be possible with a chronic care rider.
Another important difference is the amount of coverage you get or don’t get. With a life insurance based LTC policy you know the amount of coverage you will receive when you buy it. Not true with a life insurance policy with chronic illness rider.
That may seem strange. Isn’t the payment simply an acceleration of the life insurance death benefit so that I am receiving it instead while alive? Yes, but many companies put a cap on the percentage of the death benefit which is available for chronic care depending on age and status at the time the claim is made.
This results in not knowing exactly how much of a benefit I have until the time care is needed, making it impossible for me to be certain that I have adequate coverage. “If I am looking to buy insurance to manage my risk why won’t the insurance company tell me how much coverage I get”, Mary asked me.
It goes back to the cost. Mary’s life insurance agent told her there is no extra cost for the chronic illness rider and no separate underwriting requirement. “It’s the old saying, ‘you get what you pay for’,” I told Mary. “This rider is an add on. You are buying life insurance and the chronic care illness feature is thrown in. It’s not a substitute for long term care insurance. “
On the other hand, the life insurance based long term care insurance policy is long term care insurance first and foremost. The life insurance part is what allows you to benefit from the policy whether you ultimately need long term care or not. It eliminates what many hate most about LTC insurance, the “use it or lose it” aspect.
A third difference is the lack of a continuation of benefits rider with the chronic illness rider. With life insurance based LTC you have the option of purchasing added LTC coverage, possibly even life time coverage if you can medically qualify. Not so with the chronic illness rider.
Mary listened intently to what I was saying. She then asked me why her insurance agent didn’t mention to her the option I showed her. “That’s because an agent selling life insurance with a chronic illness rider only needs a license to sell life insurance”, I replied. “To offer asset based LTC, an agent must meet state licensing requirements for LTC insurance and comply with other training and continuing education requirements. Many life insurance agents are not well versed in LTC insurance and don’t sell much of it.”
Mary quickly understood the difference when I explained it to her and then considered the options . In the final analysis, she thought about the reason she had sought me out for advice in the first place- to help her solve a long term care problem. And so she went with the option designed specifically as a long term care solution, the life insurance based long term care insurance product.