The life insurance industry has made great strides in the last 5 years in an attempt to provide greater benefits to policy owners, other than just a life insurance policy’s death benefit.
One additional feature now added to some policies is the ability to request funds from your policy for some long term care needs.
I need to be careful here, because all the insurance carriers warn that this is not to be confused with “long term care insurance”, and should not be presented that way. So I will merely present these additional benefits available on some policies, and you can judge for yourself.
By far the most popular life insurance policy with a long term care rider is the Lincoln Moneyguard, but too few people can afford it, since it requires a one-time lump sum premium. So let’s spend our time here discussing affordable alternatives.
An Affordable Alternative – North American Company’s Chronic Illness Accelerated Benefit Rider
What I’m about to talk about can be paid monthly, quarterly, annually, just like any other life insurance policy, so people can actually afford to add this feature to their policies. Many companies have some form of this benefit available, but I will feature the two companies who I believe have the best riders.
The first is North American Company, who offers the Chronic Illness Accelerated Benefit rider. This rider advances a portion (up to 24%) of the death benefit while the insured is still living, if he or she becomes chronically ill. This is defined as the permanent loss of ability to perform at least two activities of daily living (ADL’s), such as bathing oneself, feeding oneself, dressing, etc., or has a severe cognitive impairment.
What’s interesting is the money is simply accelerated from the death benefit proceeds. No additional money is paid out of the policy, which is why it’s not long term care insurance. You just get a portion of the death benefit, and your death benefit is reduced by that amount.
Example of Chronic Illness Accelerated Benefit Rider in Action
Let’s say your husband purchased a $500,000 North American policy with this rider a couple years ago, and since, has developed Alzheimer’s, and can no longer feed himself or bathe himself. Perhaps you need to hire a caregiver to help your husband. In this this case, the policy owner could file a claim for between 5% to 24% of the death benefit, after a 90 day elimination period.
So if you decided to file a claim for 10%, you would get just a bit less than $50,000. The policy’s death benefit would be reduced by $50,000 leaving a $450,000 death benefit. You get a bit less than $50,000, because you are receiving benefits prior to death, and a discount is applied to the accelerated amount. You would need to see an illustration for a real-life example.
What I like about North American’s rider is that you don’t have to be confined to a nursing home to exercise it (in most states). You can use the funds for in-home care, or even if you are taking care of your own spouse, and have not hired any help at all, you can still qualify for the benefit as long as the two activities of daily living can’t be done.
It’s available on all permanent products up to age 75 at policy issue. A couple states (CA and KY) don’t allow the chronic illness rider and in MN, you must be confined to a nursing home to file a claim.
Different from Long Term Care Insurance
One big difference between the chronic illness rider and LTC insurance is that you see in the definition, that the insured must have a permanent inability to perform the two ADL’s to qualify (a letter from an attending physician will usually suffice to prove this).
If you owned long term care insurance, this definition would probably be different, and you could more easily file a claim with LTC insurance. For example, say you were in an accident and broke your back, causing you to be laid up for a year. With LTC insurance, once your elimination period passes, you could probably file a claim to cover the cost of care needed for most of that year.
However, you wouldn’t be able to with a chronic illness rider, since this is not a chronic illness, and if you were expected to fully recover, you would not fall under the definition of “permanently unable to perform at least 2 of 6 ADL’s”.
Accelerated Benefits for Terminal Illness
The other component of the rider is it also pays out up to 75% of the death benefit, while the insured is living, if he or she is diagnosed with a terminal illness. (max $250K payout).
Just about every company has a Terminal illness rider or accelerated death benefit rider, whatever you want to call it… but very few of these cover anything more than terminal illness. And even if they do cover some sort of long term care needs, it may only be used if you’re confined to a nursing home, such as the example below, whereas North American allows you to use it for in-home care.
A couple other carriers offering some sort of long term care benefits with their policies are Lincoln National and Met Life, but I’ll save my last words for the other rider I like, which is offered by Prudential.
Prudential’s Living Needs Benefit Rider
This post is getting a bit long, so I’ll just give you a couple quick bullet points about Prudential’s Living Needs Benefit rider:
- It can be added to ANY of their policies, including term (not just permanent policies.)
- Also can be added at no cost.
- Must have been confined to a nursing home for 6 months and expected to be permanently confined to a nursing home (can’t be used for in-home care)
- 100% of the contract can be accelerated. Like North American, an actuarial reduction is applied, but still the policy owner can expect to receive 90-95% of the death benefit in most cases.
For more information about life insurance policies that include free long term care benefits, give us a call at 877-443-9467, or you can get started with an instant quote using our form to the right. Just look for quotes from the carriers above, and remember, only Prudential allows you to add the benefit to a term policy.
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