Imagine you’ve just been unexpectedly diagnosed with a terminal illness at one of your routine doctor’s appointments.
Your friends consider you to be one of the healthiest people they know, so this news really hits you hard. Since your time with loved ones is now limited, ensuring they are taken care of financially, even after you’ve passed away, is of top priority.
Thankfully, the critical illness rider, a sub-set of an accelerated death benefit rider, is one of many add-on or supplemental riders a policyholder can opt to include in a base life insurance policy.
Depending on one’s specific needs, lifestyle, and current state of health, insurance riders add an extra layer of financial protection for policyholders and their loved ones when they need it most.
The critical illness rider, like other riders, extends the benefits of a standard insurance policy to add flexibility when creating a customized insurance product.
What Exactly is a Critical Illness Rider?
This rider can offer a helping hand by offsetting medical bills incurred from a policyholder’s terminal illness diagnosis. Instead of worrying about paying off mounting expenses, the insured can focus on treatments and quality of life with family support.
A critical illness rider allows the insured to collect a portion of the death benefit (also referred to as an accelerated death benefit) to pay for medical and other expenses if diagnosed with a terminal illness by a licensed doctor or physician.
Policyholders can also use the corresponding death benefit to pay for long-term care, if necessary. In actuality, though, the proceeds can be used however the insured sees fit.
Also categorized as a living benefit, this rider pays the insured an income-tax-free lump sum.
The policyholder is then faced with two choices upon diagnosis:
- Accelerate and make accessible a portion of the amount (typically between 40 to 80 percent) while he or she is still living, under certain circumstances.
- Bundle the entire payout as a traditional death benefit for designated beneficiaries.
If choosing the first option, the insurance company you’re working with will evaluate relevant factors, such as the type of terminal illness and life expectancy upon diagnosis, to determine the accelerated benefit lump sum.
The amount could be a percentage or a figure equal to the base policy coverage you agreed to.
During this process, the insurance provider may contact your doctor or physician to review any corresponding medical records.
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 with certain insurance providers.
Its own inherent value far exceeds the monetary value, though. The critical illness rider helps ease the financial burdens of families coping with a policyholder’s recent terminal illness diagnosis.
The insurer may set a cap on the amount it will allocate, and the insurance company can include this rider when the insurance policy is first written.
Critical Illness Rider Eligibility
Like most riders, there are a host of conditions, limitations, and exclusions which come along with a critical illness rider.
Eligibility requirements usually include an age range with a cap between 65 to 70 years old, depending on the specific insurance company.
Coverage often begins with the terminal illness diagnosis. Some insurance companies stipulate the insured must survive at least 30 days afterward to collect the benefit.
Providers often won’t pay until these 90 days have passed.
Critical Illness Rider Criteria
Insurers have specific criteria for what defines critical illness, as well as the parameters within each type of critical illness. The greatest variability exists with which illnesses are covered by which insurance companies.
Although this is by no means an exhaustive list, insurance companies will generally cover conditions or illnesses such as the following:
- Cancer, Alzheimer’s disease, ALS, or Parkinson’s disease
- Strokes, loss of speech, coma, and seizures
- Heart attacks or coronary artery bypass
- Major organ transplants, major burns, or loss of limbs
- Autoimmune diseases
- Paralysis or blindness
However, even within these seemingly straightforward criteria, there exist some differences.
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 or a heart attack.
While it may seem cold-hearted for insurance carriers to stipulate such specific critical illness criteria, it realistically reflects the different survival rates of these conditions.
Critical illness, in insurance-speak, means a condition shortening the insured’s lifespan, or life expectancy.
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, while an upgraded rider will cover a greater range of illnesses. Insurance companies may include heart valve surgery or major head trauma to their lists of covered medical conditions.
These additional health issues will also have specific criteria defining severity within each one’s framework.
A Critical Illness Rider’s Exclusions
The fine print for a critical illness rider will include a plethora of exclusions for which it will not pay. Some exclusions relate directly to the critical illnesses the protection covers.
For example, the protection often will exclude health issues if they are a result of a pre-existing condition.
Likewise, the rider may not cover critical illnesses occurring 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 since the insurance companies often cast a wide net for these pursuits. The scope may include obvious choices like skydiving, but insurance providers may also add more mundane activities, like hunting or martial arts, to their lists of exclusions.
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 exclusions list. The existence of these exclusions doesn’t mean the insured cannot participate in these activities, though.
Rather, any critical illnesses occurring as a direct result of any of them will not be covered.
Should You Add The Critical Illness Rider?
A critical illness rider is often a standard add-on for a life insurance policy that helps cover medical expenses if the insured suffers from a terminal health condition.
Insurance companies vary on the types of medical issues they will agree to cover, and providers also often include specific criteria related to terminal illness severity.
Certain carriers may also build in termination stipulations on the rider depending on how much of the accelerated death benefit is made accessible to the policyholder at origination.
It makes good sense to evaluate the terms of the critical illness rider to avoid any unfortunate surprises or unanticipated fine print down the road.
However, if you have stashed away enough savings to circumvent attaching this rider (and possibly paying any add-on fees to your monthly base premium), then move confidently along your path toward becoming self-insured.
If you’ve been diagnosed with an unforeseen terminal illness, but you’re worried about financially burdening loved ones with long-term care or treatments, consider supplementing your standard life insurance coverage with a critical illness rider today.