With the population aging, health care costs rising and LTC options decreasing, Chronic Illness benefits on life insurance policies are becoming more important and more popular. They can provide an acceleration of death benefits to help pay the costs related to illness, injury and aging. In many cases this death benefit acceleration is considered to be tax free by professionals. Chronic illness riders should not be confused with long-term care riders which are more expensive and create a second pool of funds for Long Term Care expenses. For the purposes of this discussion we will focus on the common chronic illness riders that are included as an embedded feature on some policies.
Specifics of CI riders vary widely from product to product. Generally speaking, lump sum style (SPL) products tend to offer richer benefits than continuous/multiple pay products and are more suited to planning with funds set aside for health related expenses and wealth transfer.? Although there are some designs that effectively transition qualified monies for use in CI linked products, non-qualified funds usually work best.
When evaluating a CI benefit and the value it will provide to a policy holder, many things need to be considered:
First of all,?the process for accessing the benefit. Many riders use the 2 of 6 ADL ?trigger? but read the fine print;
1. Does the condition need to be permanent?
2.Do other conditions need to be present?
3. Does the benefit need to be reapplied for after a period of time? [Read more…]