Life Insurance with Accelerated Benefit Riders
Living Benefit Riders on Life Insurance to Help with LTC Expenses
Chronic Illness & LTC riders on Life insurance contracts provide an acceleration of the planned death benefit while the insured is still alive. This benefit is triggered by the need for assistance with 2 of 6 ADL’s or a cognitive impairment. Like all insurance policies, there are many variations, and nuances to learn, and you need to be careful not to over simplify the differences. These are paid riders that add to a base premium cost.
- Chronic Illness riders, such as American General’s Accelerated Access Solution Rider, or Prudential’s Benefit Access Rider, are filed for tax purposes as a 101g acceleration of the death benefit. This means that these are chronic illness riders and require the need for assistance with 2 of 6 ADL’s or a cognitive impairment, to be permanent. However, chronic illness riders do not require any special LTC training. Many of these products offer a monthly payout of 2% of the initial death benefit. (American General has other available options for payouts as well, please see our chronic illness rider spreadsheet for more details)
- LTC riders are filed for tax purposes as a 101g and 7702B. This additional filing changes the qualifications required to go on claim. While both chronic illness and LTC riders require the insured to need assistance with 2 0f 6 ADL’s or have a cognitive impairment, chronic illness riders require that need to be permanent. LTC riders require that the need of care is for at least 90 days. Plans filed with 7702B (LTC) may require specific LTC training depending on the state regulations. Carriers that offer an LTC rider are Minnesota Life and Transamerica. Those carriers offer indemnity benefits using the 2% of death benefit per month, similar to the chronic illness riders.
- No Cost Chronic Illness riders, are the third alternative and offer a reduced benefit for chronic illness care with no additional premium. The following is an explanation of North American’s Chronic Illness Accelerated Benefit Rider. The claim triggers are the same as with the Add-on Chronic Illness riders however, the difference is that the benefit must be elected each year by the insured and the benefit can only be paid out as a lump sum once or twice per year. The death benefit would be reduced by the amount the client chooses to accelerate, however, the actual amount paid to the client will be less than the amount accelerated. The reason for the difference is a discount that is applied to the acceleration based on the insured’s age, premium class, interest rates, etc. There is also a $200 fee applied to each election. This type of chronic illness care is more difficult to use for planning purposes since you do not know exactly how much benefit you will receive. However, since there is no additional premium is required, it is an excellent benefit for the cost.
Long Term care planning is an essential part of protecting your client’s family and their hard earned assets. Traditional LTC provides the most protection for a long term health care need, while the No-Cost Riders provide the least amount of protection.