A critical illness rider, a sub-set of an accelerated death benefit rider, is one of many add-on riders a policyholder can opt to include in a base life insurance policy.
It, like other riders, extends the benefits to add flexibility for creating a customized insurance product. A standard life insurance policy pays to the beneficiaries upon death. This rider pays the insured while he’s still living, under certain circumstances.
What Exactly Is A Critical Illness Rider?
A critical illness rider allows the insured to collect a portion of the death benefit to pay for medical and other expenses if he is diagnosed with a terminal illness.
He can also use it to pay for long term care if necessary. This add-on provision is not often included as standard practice with life insurance policies, though it’s becoming more popular. It is typically a low-cost rider and may even be included without charge.
The amount it advances depends on the insurance company. It may be a percentage or a figure equal to the base policy coverage.
Its own value far exceeds the monetary one. It can help ease the burden of loved ones going through this difficult time. The insurer may set a cap on the amount it will allocate. They will include this rider when the policy is first written.
Like most riders, there are a host of conditions and limitations for a critical illness rider.
They usually include an age range with a cap between 65 to 70, depending on the insurer. Coverage often begins with the diagnosis. Some insurance companies stipulate the insured must survive at least 30 days afterward to collect the benefit. They often won’t pay until 90 days has passed.
Critical Illness Criteria
Insurers have specific criteria for what defines critical illness as well as the parameters within each type. The greatest variability exists with which illnesses are covered.
Cancer, for example, is not just one disease but a complex group of conditions. Insurance companies will often apply the term “of specified severity” to illnesses such as cancer and heart attack.
While it may seem cold-hearted, it reflects the different survival rates of these conditions. Critical illness in insurance-speak means a condition shortening the insured’s lifespan.
For example, the 5-year survival rate for pancreatic cancer is less than 10 percent whereas the rate for prostate cancer is 99 percent. Likewise, rider coverage for stroke often specifies permanent symptoms. The criteria for heart attacks also carry specific conditions such as elevation of infarction specific enzymes. It also excludes others like angina pectoris.
Some critical illness riders offer tiered coverage.
A basic option will include the major four health conditions. An upgraded rider will cover a greater range of illnesses which may add heart valve surgery, major burns, or major head trauma to the list of covered conditions. These additional health issues will also have specific criteria which define severity within each one’s framework.
The fine print for a critical illness rider will include a plethora of exclusions for which it will not pay. Some related directly to the critical illnesses the protection covers.
For example, the ride protection often will exclude these health issues if they are a result of a pre-existing condition. Likewise, the rider may not cover critical illnesses occuring before 90 days into the coverage.
Other exclusions include lifestyle factors such as participation in what is deemed as hazardous activities. It behooves the insured to investigate these criteria because the insurance companies often cast a wide net for these pursuits. The scope may include obvious choices like skydiving, but it may also add more mundane activities like hunting or martial arts to its list.
Some critical illness riders will also include exclusions beyond the control of the insured such as acts of war or terrorism.
Military activity during peacetime may also make the list. The existence of these exclusions doesn’t mean the insured cannot participate in these activities. Rather, it won’t cover a critical illness which occurs as a result of any of them.
A critical illness rider is often a standard add-on for a life insurance policy which will help cover medical expenses if the insured suffers from a terminal health condition. Insurance companies vary on the types of issues they will cover. They will also include specific criteria for severity.
It makes good sense to evaluate the terms of this rider to avoid unfortunate surprises down the road.