At a Glance:
Critical illness riders allow you to access your life insurance benefit—in some cases, up to 80% of your total benefit—if you are diagnosed with a critical illness or injury, such as a heart attack, cancer, or major organ failure. It’s not available on all policies, so check with your insurance company before purchasing a policy.
For most people, the concept of life insurance conjures up the idea of a death benefit, only paid out to beneficiaries at the time of the insured’s death. Some policies, however, offer certain types of riders that allow a policyholder to access their benefits while they’re still alive.
Critical illness riders, patterned after critical illness insurance policies, are available from some insurers as an add-on to an existing life or health insurance policy. They offer additional protection for policyholders over and above the base life insurance policy. With a critical illness rider, you can use part of your life insurance money to help you and your family long before your death.
The concept is a popular one.Sometimes with critical illness such as cancer, death happens after a long, drawn-out period that can sap family finances for care expenses while the insured is already unable to work. A critical illness benefit helps bridge that financial gap, allowing the insured to focus on treatment and recovery.
How Life Insurance Policy Riders Work
A rider is an additional benefit that can be purchased to “ride” on top of the policy. Some riders add an extra cost to your monthly premium amount but can also add new benefits to your insurance plan that can expand your coverage significantly. Others come at no cost as part of a special sale or agreement; they may simply be added on to the policy.
Available rider types vary greatly by the insurance company, but some typically available riders include:
- Funeral/Burial Expenses: with a separate rider that adds a specific benefit for these, your loved ones can use the main death benefit to handle debts or maintain a household.
- Long Term Care: with an LTC rider, you can access your benefits while you’re still alive if you need to pay for a nursing home or other long-term care.
- Return of Premiums: an ROP rider, added to a term life policy, returns all of your premiums at the end of your term if you outlive the life of the policy.
Within a given insurance company, riders are offered to prospective policyholders based upon their individual risk factors. A rider available to one policyholder with low risk, for instance, may not be available to another policyholder with higher risk factors such as age or poor health, or it may be more expensive.
Critical Illness Policy Riders
A critical illness policy rider allows you to typically access from 40% up to 80% of your insurance policy benefit if you are diagnosed with a major or terminal illness or life-threatening injury. Some of those conditions or illnesses may include:
- Heart conditions and issues such as myocardial infarction (heart attack), coronary artery bypass or aortic surgery
- Neurological issues such as stroke, loss of speech, or coma, as well as seizures or other issues that make it impossible for you to work
- Diseases such as cancer, Alzheimer’s disease, Parkinson’s disease, ALS, late-onset insulin-dependent diabetes, or occupational HIV infection
- Accident or injury that involves multi-system trauma, such as to three or more organs
- Loss of limb, major organ transplant/failure (such as kidney failure), or autoimmune disorder
- An illness or injury that affects one of your senses, such as blindness or paralysis
- Major burns
The above is merely a partial list; your own rider may include other additional conditions or may not include some of those listed above. Generally speaking, however, a critical illness policy rider will cover anything that makes you unable to work, is likely to shorten your lifespan significantly, and puts you in need of financial assistance. To know what exactly is covered on your rider, you’ll want to talk to your life insurance company directly.
Creating the Insurance Policy That’s Right for You
Even though a critical illness rider can help you if you find yourself in medically induced dire financial straits, its actual value can only be determined by your own financial situation.
When considering how much of a critical illness rider to purchase for your life insurance policy, you’ll need to take into account the following criteria:
- Your current health and any risk factors such as family history
- Your employment: if you become sick or seriously injured, can you continue in your current position? If not, would you be able to get work in another position or field?
- Your financial situation: do you have enough savings put aside to handle a catastrophic medical emergency or long-term illness? Can your family maintain the household without your income?
- Your number of dependents: if you have children, aging relatives, or others who are dependent on you for their support, that will also play a role in your decision on a critical illness rider.
Before you purchase a policy, if you think a critical illness rider is something you’d want to add to your base policy, you’ll want to ensure that any insurance company you’re considering not only offers it, but that you qualify for the rider.
If you do not have a family dependent upon your income, or if you have enough savings to weather a medical catastrophe, you may not need a critical illness rider, choosing instead to rely on your own savings.
Policy riders can add a great deal of value to your life insurance policy and offer benefits not typically seen on a basic policy. Their extra cost, however, can be prohibitive—especially if you’re not sure if you need one or aren’t certain which riders will offer the biggest benefit for you.
Depending on you and your family’s situation, a critical illness policy rider may offer another level of security for you, often in the form of a lump sum payment, in case of an unforeseen situation. Before choosing a rider—or a policy to put it on—you should first understand not just your own finances and risk, but how a medical issue could affect your family and your financial health.