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Terminal Illness and Chronic Care Rider – A Substitute for Long Term Care Insurance?

     Mary is considering the purchase of a life insurance based long term care insurance product, which she expressed an interest in after reading about it on my blog.  Mary then said to me that her life insurance agent quoted her a premium on a life insurance policy with a terminal illness and chronic care rider. He told her that there is no additional charge for the rider and that she does not have to go thru underwriting to add it.  She then asked me, ” why would I need the product you’re showing me? This is less expensive and seems like it would be easier to get.”

     “Because they are not the same thing”, I told Mary.  “Chronic illness riders and long term care insurance are not the same thing.  You need to be very clear on what you are getting and what is missing with the chronic care rider.”

     Lets’s first define some terms. A terminally ill person is one who has been certified by a doctor to have an illness or physical condition which can reasonably be expected to result in death within 24 months after the date of certification.

     A chronically ill person is one who (1) is unable to perform, without substantial assistance, at least 2 of the activities of daily living for at least 90 days, (2) has a similar level of disability, as designated by regulations, or (3) requires substantial supervision to protect the person from threats to health and safety because of severe cognitive impairment.

     To the untrained ear this might sound identical to the triggering language in a long term care policy. Also, policy payments made for terminal and chronic care illnesses are treated as an acceleration of death benefit and are received income tax free. This may all seem similar to the asset based life insurance LTC policy. Don’t be fooled.  It’s not.