Should advisors recommend clients buy stand-alone long-term-care insurance and critical illness/chronic illness policies or seek life insurance with riders covering these issues?

It depends, experts say.


Stand-alone long-term care policies typically have more features, such as inflation protection, and provide the greatest flexibility in choosing the level and type of benefits, says Joe Kenny, product performance director at Mutual of Omaha in Omaha, Neb. But some customers worry about future premium increases for such policies and about paying for coverage that they might never use.

“For those customers, buying a life insurance policy that has a long-term care rider or chronic illness rider might be a better choice,” Kenny says. “In this way, they have a product that can provide some money to cover long-term-care expenses, if necessary, while also providing money upon the customer's death.”

A long-term-care rider is typically available for an additional cost, so there is some of the same concern about paying for coverage that is not used, but the monthly benefit amount is a known amount (usually 2% of the face amount of the life insurance policy) and the cost is generally guaranteed at issue, he says.

The chronic illness rider usually has no upfront cost, but there is a charge that is applied when the illness benefit is claimed. That charge is typically based on the insured’s age and life expectancy at the time of claim.

“In both cases, the customer gets the benefits of owning life insurance, even if they never make a claim for long-term-care benefits,” Kenny says.


Ashley O’Kurley, a certified financial planner with John Hancock Financial Network in Miami, says long-term care insurance has changed considerably in recent years, as carriers have had to pay out more in claims than they had originally projected due to people living longer. Moreover, their profits have been dampened by the prolonged period of historically low interest rates, causing several to exit the market altogether. “Those that have stayed in the market have re-priced their premiums, charging more to underwrite policies that offer less generous benefits than they had in years gone by,” O’Kurley says.

Long-term care riders on life insurance policies provide some coverage, but usually not much, but “something is often better than nothing,” he says. In addition, clients need to commit themselves to finance the policy for decades, and the fixed amounts on long-term care benefits 30 years from now “will not likely amount to much coverage.”


As for stand-alone critical illness policies, the products can provide a quick cash infusion during a serious illness, but often include restrictive covenants that only pay in prescribed scenarios, O’Kurley says.

Ideally, clients should have appropriate health and disability insurance along with substantial liquidity for emergencies. “However, critical illness plans can provide peace of mind for those with a history of serious illness in the family or other personal experiences that have led them to seek additional protection,” he says.

Critical illness/chronic illness riders on life insurance policies can be an affordable way of obtaining coverage, O’Kurley says, “assuming that a life insurance need exists.”

Katie Kuehner-Hebert is a freelance writer in Running Springs Calif. She has contributed to Financial Planning, On Wall Street and American Banker.

This article is part of a 30-day series on better serving seniors.

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