What’s Better, A Chronic Illness Rider or a LTC Rider? with David McKnight

The question often comes up, which is better? A chronic illness rider or a long term care rider? For 50 to 65 years, the primary benefit of the Life Insurance Retirement Plan is the ability to receive your death benefit in advance of your death in order to pay for long term care.

The long term care rider basically says that for an extra charge you can receive your death benefit in advance of your death at a certain rate per month. Requiring assisted living in two out of six activities of daily living triggers eligibility for this benefit.

One critical thing to note is that since it’s a long term care rider, the insurance company is going to underwrite you for long term care. This means that if you have an existing health problem it can be cause for rejection of your application. It also comes with an additional cost where you are paying for the option to take your death benefit early on the front end. If you die peacefully in your sleep without ever needing long term care you don’t recoup that money.

The chronic illness rider is essentially the same as the long term care rider with the same trigger conditions and a similar pay out. The main difference is that the insurance company doesn’t charge you on the front end, they charge you on the back end.

The insurance company will discount the payout based on a function of your age as a way of compensating themselves for giving you the money prior to when they expected they would.

Another difference between the two is that the insurance company will not underwrite you for long term care with the chronic illness rider. Even if you have an existing health problem they will accept you which makes it a great option for people that would otherwise not qualify.

One of the biggest problems with the traditional long term care approach is that you are paying for something you hope you never have to use and if you don’t use it you don’t get the money at the end. It’s not that different from the long term care rider.

You’re paying extra up front and that is money that could have been invested in your growth account.

David prefers the chronic illness rider over the long term care rider mainly because if you do die peacefully in your sleep without having used the money you don’t lose any money along the way. There is no drag on your cash value or opportunity cost of paying for something you never wanted to use. Being able to qualify for a chronic illness rider if you have an existing health condition is also a big advantage, and it neutralizes the single biggest source of heartburn that comes with traditional long term care approaches.

The primary motivation for many of David’s clients that use the LIRP is the long term care aspect and David typically recommends a chronic illness rider. It comes with many of the benefits and nearly none of the downsides. [

Between the two options for your traditional life insurance approach to long term care, the chronic illness rider is probably your best option.