A chronic illness rider, also called a critical illness rider, allows you to access your life insurance policy’s death benefit while you’re still alive provided you meet the criteria of having a critical health issue or chronic illness.
Critical health issues include debilitating illnesses like strokes and heart attacks.
A chronic illness is a permanent condition that doesn’t allow you to perform a minimum of two of the six basic ADLs, which are Activities of Daily Living:
- Personal Hygiene
A chronic illness rider differs from an accelerated death benefit in that you do not have to have a terminal diagnosis in order to qualify.
How a Chronic Illness Rider Works
With a life insurance chronic illness rider, you must first receive a diagnosis that meets your particular insurance policy’s requirements, which can vary from policy to policy.
The important thing to understand is that you must add the rider to your life insurance policy before you develop the critical or chronic illness. Once you’ve received a diagnosis of a critical health issue, it’s too late to qualify for a chronic illness rider.
If you have a chronic illness rider in effect and develop a qualifying condition, with proof from your physician, your insurance company will issue a payout as a percentage of your death benefit. That percentage also varies from policy to policy. While some life insurance policies include a free chronic illness rider, those tend to be relatively limited in what they offer. Yes, that money can be crucial to those with critical health issues, and there are generally few if any restrictions on how it can be spent, but it’s important to remember that because the payout comes from your death benefit, the total amount of your death benefit is diminished by that amount.
The Life/Viatical Settlement Option
Rather than paying for a chronic illness rider that you may never need, there’s another option should you find yourself with a critical or chronic illness—a life/viatical settlement.
As a policy holder, you are legally permitted to sell your whole life insurance policy to a third party for a one-time cash payment, called either a life settlement or a viatical settlement.
If you meet the minimum qualifications—you’re at least 65 years old (or have a terminally ill diagnosis, in which case your age doesn’t matter) and your whole life insurance policy is worth a minimum of $100,000—you’ll receive an immediate cash payout with a settlement.
For example, with a settlement, you can receive between 10% and 35% of the death benefit with an average of 20%—that’s $20,000 on a $100,000 life insurance policy. That payout can be used in any way you see fit. The life/viatical settlement company then assumes your life insurance premiums and collects your death benefit upon your passing.
A Life/Viatical Settlement Company
A licensed, experienced settlement company can explain the entire process to you and help you decide if a life/viatical settlement is the right choice for your situation.