Kathy’s Corner: Life Insurance “Living Benefits” Rider – Navigating the weeds to determine which one is best for your client

In the world of evolving Life Insurance, making sure that your client has adequate coverage for their unique situation is a given.  The wealth living benefits riders available today to go with that coverage can cause a great deal of confusion for both the agent and the client.  One of the most important riders offered today is one that can be triggered to help with the client’s care if they should have a health issue.

Knowing which of those riders is attached to the various Life products available in the market today is important. Understanding what each rider’s triggers are and how the rider is paid for is even more important.  Unfortunately, nothing is free!  Those riders are either paid for on the front end of the policy when it is purchased, or the back end if and when a claim on them is made.

The client’s current health, as well as that of parents, grandparents and siblings is vital to determining what their needs are now and what they may be in the future.  Since many health issues do not appear until later in life, locking in coverage now that will insulate them from potential claims later is an important consideration when guiding them through the options.  My intention is not to get overly technical, but to encourage you to research and understand the differences in these riders.  How many options are there?  More than you might think! 

First, you have the old standby, the Chronic/Terminal Illness Rider, sometimes known as the Accelerated Benefits Rider for Chronic Illness and Terminal Illness.  Generally referred to as a 101(g) rider, it has been around a very long time.  What is important to note with each product is the trigger needed to file a claim.  With some, the client must be determined to be terminally ill with a life expectancy to be less than one year. With others, a “qualifying” event, such as Heart Attack, Stroke or Cancer can trigger the rider. Regardless, it must be made clear that this is NOT a qualified Long-Term Care Rider (LTC).  Payment of claims for this rider will typically reduce the Specified Amount used to determine the Policy’s Cost of Insurance.  As a result, the premium needed to keep the Policy Inforce may change, and the payment of the benefit may result in taxable income.  The specific rules for this rider can vary between greatly between carriers and products.

Next, to avoid the mountainous effort needed to create a new, less restrictive “Living Benefits” rider, the industry created a “new definition” for the old Chronic Illness rider which allows it to use 2 of the 6 Activities of Daily Living (ADL’s) and/or possibly a Cognitive Impairment as a trigger for a claim.  This makes it look like an LTC rider, but again, it must be made clear, that it is NOT a true, qualified Long-Term Care Rider.  If you read the Rider language and description, you will not find the verbiage Long-Term Care.

Finally, you have the true “Long-Term Care Rider”, 7702B, that is available on some Life products.  This rider is filed differently and can use the words Long-Term Care in marketing and policy materials.  Again, it uses 2 of 6 ADL’s or a Cognitive Impairment as a trigger, and the client will be underwritten for morbidity in addition to mortality when being considered.  It should also be noted that carriers some require LTC training to sell this rider.

I cannot emphasize enough how important it is to know and understand what you are offering to your clients.  Just as important is that you make sure they understand what their options are.  Do what is necessary to be the valuable resource your clients trust and depend on to secure the future for themselves and their families. For more information about guiding your clients to best rider for them, contact Insurance Advisors.