A chronic illness rider is an add-on for life insurance policies. This rider is also known as an accelerated death benefit or a living benefit rider.
A life insurance policy with a chronic illness rider allows you to use some or all of your death benefits to pay for medical or long-term care. Only those diagnosed with a chronic or terminal condition can access care benefits.
Many people confuse chronic illness riders with Long-Term Care Insurance riders or policies. However, chronic illness riders are not the same as Long-Term Care Insurance. They do not provide comprehensive coverage for long-term care or meet federal guidelines.
The main difference between the two is the chronic illness part. Most chronic illness rider policies require a permanent or "chronic" condition to activate care benefits. Some policies limit access even further to only those who have terminal conditions.
Most people who need long-term care do not and never will have a chronic or terminal condition. That means if you needed care but didn't have a chronic condition, your policy would not help cover or pay for the cost of care.
Because of this requirement, policyholders may feel confused about when they can use their benefits. To add to the confusion, it can be hard to tell how much your chronic illness rider actually pays for care. Many times, it pays substantially less than expected.
There are some other drawbacks to chronic illness riders too:
You may have to pay taxes on any care benefits received. This amount depends on your policy's structure and how you use the benefits.
You may reduce or eliminate your death benefit by paying for care.
You may receive less coverage than a stand-alone long-term care policy.
The value of your benefits within the chronic illness rider policy may be unknown or hard to distinguish until after a claim.
Chronic illness riders may raise your premium or add fees to your policy.
The bottom line is chronic illness riders do not provide Long-Term Care Insurance coverage. They're add-ons for life insurance policies that only help with terminal or chronic conditions. All chronic illness rider policies should disclose this information on the first page of the policy.
If you're looking for Long-Term Care Insurance coverage through your life insurance policy, you can add a qualified LTCI rider. These are also known as hybrid policies, which you can learn more about with our article on the differences between traditional Long-Term Care Insurance vs. hybrid Long-Term Care Insurance.