Clients can use more than one kind of rider to cover LTC needs. (National Park Service photo)

Many aging baby boomers are protecting themselves against long-term care (LTC) costs by using life-LTC hybrids rather than stand-alone long-term care insurance (LTCI) policies.

Consumers can use different kinds of policy features to help meet LTC planning needs.

Last week, I talked about the LTC riders classified as 7702B riders. This week, I want to talk about 101(g) only options.

Of course, all LTC and chronic illness riders on life insurance pay benefits as a tax-free acceleration of death benefit via 101(g).

But there are important differences, and those differences determine which types of claims qualify for benefits, how benefits are paid out and how riders are charged.

The LTC riders classified as 7702B offer more comprehensive coverage. To qualify for a claim, the client needs to meet the basic requirements related to chronic illness. That means a physician must certify that the insured, for a period of at least 90 days, is unable to perform at least two activities of daily living (ADLs) or suffers from severe cognitive impairment.

There are other riders — chronic illness riders — that are classified only as 101(g) riders.

These 101(g) only riders all use the indemnity model of benefit payment. However, the term “long-term care” may not be used in marketing these products.

Thus, you will see these riders generally referred to as “accelerated death benefit for chronic illness” riders.

In addition, the physician must certify the chronic illness “is likely to last the rest of the insured’s life.” In other words, the condition must be non-recoverable. For this reason, temporary conditions would not be eligible for claim.

The main differentiator among chronic illness riders is whether the rider is paid for by an additional charge added to the policy or is included as a policy feature with no underwriting, discounting the total death benefit to provide the chronic illness benefit.

Some companies “include” a chronic illness rider feature as part of the policy, with no underwriting and at no additional charge. But keep in mind, no charge does not equate to free.

Instead of charging for the rider, the death benefit is discounted when the rider benefits are actually needed.

Because of this, benefits cannot be determined until a claim is filed. The discounting of benefits is based on several variables, including age, sex of the insured, premium class, as well as current interest rates and policy cash values at time of claim.

The younger you are when filing a claim, the more the death benefit is discounted.

While some may argue this method spares people never needing qualifying chronic care services from paying rider charges, those needing benefits may not understand at the time of the claim why the total policy death benefit paid is not the amount at policy issue.

Other chronic illness products assign a cost of insurance to the rider and take monthly deductions from policy values — essentially the same way the base policy premium is charged.

While this does increase the premium for the overall life insurance policy, charging for the rider provides a client with the advantage of knowing from day one exactly how much death benefit and chronic illness acceleration they will be entitled to, no matter when the need arises.

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