Critical care riders: the living benefit more clients should understand

Critical care riders transform life insurance from a product that only pays out when someone passes away into a policy with living benefits that protect the insured during their lifetime.

“If the insured survives a major medical event, such as a stroke or cancer, a critical care rider can provide a portion of their death benefit to help cover immediate expenses,” said Jake Tamarkin, co-founder and president at Everyday Life Insurance

This cash can be used entirely at their discretion. Essentially, it protects the client’s broader financial plan and savings from being wiped out by a serious medical condition.

Industry data tracked by LIMRA shows that traditional individual critical illness in-force premiums sit in the billions, with newer combination policies (like life insurance bundled with critical or chronic care riders) seeing a 21% premium increase year-over-year in recent industry reporting.

“Critical riders support and care for the insured, and may lift incredible financial burdens when they’re faced with critical illness, disability and mortality,” explained Josh Anderson, president and CEO of Eagle Legacy & Financial.

Common misconceptions about these products

The most common myth is that health and disability insurance make these critical care riders unnecessary or redundant. In reality, those policies rarely cover deductibles or non-medical living expenses.

Also, many individuals mistake a critical care rider for a terminal illness rider and believe that one must be terminally ill to collect. This is simply not true.

Additionally, some believe the payout is “free money” rather than an early payout that reduces the death benefit.

Lastly, critical care riders aren’t only for those with limited funds.

Even if someone has substantial financial resources, a critical rider could offset their medical costs and help preserve the nest egg they’ve worked so hard to build.

When they make sense

The best candidates for critical riders are clients whose livelihoods would be halted during a medical crisis.

This includes self-employed individuals and small business owners who lack paid sick leave or group disability benefits. Professionals with young families and high expenses fit the bill as well.

“For these clients, the rider acts as an essential safety net to protect their lifestyle and keep their goals on track,” Tamarkin explained.

According to Anderson, a significant tax-free benefit could open the doors to advanced treatments that extend their lifespan. It could also allow them to support or even spend additional quality time with loved ones.

The advisor role

Critical care riders and accelerated death benefits can add cost to a policy. However, in many cases, some form of a critical care rider is built into a life insurance plan, and individuals can choose to pay an additional fee for more comprehensive coverage.

Once an advisor determines a client might be a good fit for a critical care rider, Tamarkin recommends comparing its cost to the cost of standalone critical illness policies, which are significantly more expensive.

Then, weigh the rider's marginal cost against the high chance of a client surviving a major illness before retirement.

“Finally, contrast the small premium with the major financial setbacks that can occur after a medical event,” Tamarkin explained.

If possible, tell a personal story or share an example that could be eye-opening for the client and truly convey the value of a critical care rider.

It’s also essential to read the fine print and clearly explain that exercising the rider reduces the benefit left to beneficiaries.

“Many advisors gloss over the survival period, or assume every medical condition,” Tamarkin said.

To avoid mistakes like these, frame the benefit as an early partial payout of the death benefit, rather than an addition to it. Set realistic expectations by reviewing the policy’s named qualifying illnesses and waiting periods at policy delivery.

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Anna Baluch is a finance reporter and writer with more than a decade of experience. Contact her at [email protected]