A Critical Illness Rider is one of many add-on riders you can include in your life insurance policy.
This benefit means that you have access to some of your death benefit prior to passing away depending on life circumstances.
How Does the Critical Illness Rider Work?
The Critical Illness Rider allows you as the policyholder to collect a portion of your death benefit to cover the cost of medical expenses and other expenses if you are diagnosed with a critical illness.
If necessary, you can also use this portion of your death benefit to pay for long-term care.
This is a low-cost benefit which, with permanent policies, is typically included free of charge. The amount of the death benefits you receive is contingent upon your company and it might be a flat percentage such as 50% of your total death benefit or it could be a figure equal to your base policy coverage.
Who is Eligible for the Critical Illness Rider?
In order to utilize the Critical Illness Rider, there are many conditions and limitations:
Typically these limitations include an age range. Life insurance companies will add a maximum age between 65 and 70 depending on the company.
Coverage starts with a diagnosis. Some insurance companies state that you have to survive for at least 30 days after the original diagnosis in order to collect this benefit.
Others will not pay the benefit until you have lived at least 90 days after the initial diagnosis. That said, the value associated with his benefit exceeds a monetary one. It can simply help you and your loved ones when you faced a difficult time.
Eligibility extends to the definition of critical illness which differs from one company to the next.
Generally speaking, insurance companies consider the following to be critical illnesses:
Even within these health conditions, there are stipulations which life insurance companies use to classify who is eligible to receive the death benefits from their policy under the critical illness rider.
Cancer, for example, is typically defined by the severity of cancer and the type of cancer. You cannot just take out this benefit for less serious cases of cancer like skin cancer.
Who is the Critical Illness Rider Best for?
Even if you are in good health right now and you received a decent life insurance policy, you might know that many of your family members suffered from pancreatic cancer or heart conditions.
Critical Illness Rider Pros & Cons
1. Extra Financial Support in the event of a Critical Illness Diagnosis
The main benefit to this feature is the extra security at provides especially if you are worried about being unable to support your family in the event that you are diagnosed with a critical illness.
1. Strict Guidelines for Which Illnesses Qualify
The drawbacks though include the fine print for definitions of critical illness. Many companies will have exclusions and if you fall under any of those exclusions they will not pay for a claim. For example, if your health issue is the result of a pre-existing condition it does not fall under protection from your critical illness benefit.
So, if you have a pre-existing heart condition and the company is aware of it, you were aware of it, and you are issued a diagnosis that states you have a critical illness because of that pre-existing heart condition, you cannot use the benefit to cash out part of your death benefit prematurely.
2. Some People May Be Denied This Coverage Because of Lifestyle
Other exclusions might include lifestyle factors. If you decided to go skydiving and you received a critical illness diagnosis as a result, the Life Insurance company may not cover that.
Some companies also exclude things outside of your control like terrorism or military activity during peacetime, so even military members who receive a critical illness during peacetime are not covered.
How Much Does the Critical Illness Rider Cost?
The cost of the Critical Illness Rider is typically a few dollars for every unit of coverage you have, a unit being $1,000.
This cost varies from one company to the next and it also varies based on the type of policy you have.
If you have a permanent policy the cost might already be factored into your policy as one of the extra features.