Term, other-insured, and long-term-care riders

Term, Other-Insured, and Long-Term-Care Riders

Three rider families answer three different questions. A term rider asks how do I give the same insured more coverage for a while? An other-insured rider asks how do I cover a second person on this one contract? A long-term-care rider asks how do I reach the death benefit while the insured is still alive and needs care? Keep those three questions apart and most exam items on this objective answer themselves.

All three share the rider fundamentals: each carries its own premium charge, each is underwritten, and each ends when the base policy ends.

Term riders

A term rider adds level term coverage on the base insured's own life, stacked on top of a permanent policy. A client who needs $500,000 of protection for the next twenty years but can only afford $150,000 of whole life buys the whole life and blends a $350,000 term rider on top. The economics are the point: term costs a fraction of permanent coverage per dollar of death benefit, so the rider buys the height of the need while the base policy buys its permanence.

What to remember:

• The rider expires on its own schedule -- a stated number of years or a stated attained age

-- even though the base policy continues.

• Most term riders are convertible: the owner may exchange the rider's coverage for

permanent insurance without new evidence of insurability, priced at attained age.

• A decreasing term rider is the same idea with a face amount that steps down on a

schedule, historically sold to track a mortgage balance.

• The rider's death benefit is paid in addition to the base face amount, but only if the

insured dies while the rider is still in force.

Other-insured riders

An other-insured rider covers someone other than the base insured under the same contract. The base policy's owner and insured do not change; the rider simply extends term coverage to a second life.

Spouse or other-insured term rider. Level term on a spouse -- or on a business partner or any other person in whom the owner has an insurable interest -- usually expiring at a stated age such as 65, and usually convertible to permanent coverage without evidence of insurability. That second person is underwritten for the rider.

Children's term rider. One rider covers all of the insured's children, and it is sold in small units rather than a face amount chosen child by child. Its defining features are the ones exams test:

• Children born or legally adopted after the policy is issued are automatically covered at

no additional premium -- the price does not vary with the number of children.

• Coverage typically begins about 14 or 15 days after birth and ends at a stated age, commonly

somewhere between 18 and 25.

• At expiry the coverage is normally convertible to permanent insurance, often at a multiple

of the rider's face amount, with no evidence of insurability.

A family rider simply bundles the spouse rider and the children's rider together. Note the asymmetry in all of these: the benefit is payable to the base policy's owner, and paying a claim on a covered child or spouse does not disturb the base policy at all.

Long-term-care riders

A long-term-care rider does not add money to the contract. It accelerates money already there: it pays a monthly benefit for qualified long-term-care services and reduces the death benefit dollar for dollar as it pays. Spend the face amount on care and the beneficiaries receive little or nothing beyond whatever residual death benefit the rider guarantees.

The benefit trigger is standardized and heavily tested. A licensed health care practitioner must certify that the insured is chronically ill, meaning either:

• unable to perform at least two of the six activities of daily living -- bathing,

dressing, transferring, toileting, continence, and eating -- without substantial assistance, and expected to remain unable for at least 90 days; or

• suffering severe cognitive impairment requiring substantial supervision to protect the

insured's health and safety.

An elimination period, commonly 90 days of care, runs before benefits begin. The monthly payout is capped as a percentage of the face amount -- frequently 2 to 4 percent -- so a $300,000 policy with a 2 percent cap pays up to $6,000 a month and would exhaust the death benefit in about 50 months of claims. An extension-of-benefits rider, bought for extra premium, continues payments after the death benefit has been used up.

Distinguish the long-term-care rider from an accelerated death benefit for terminal illness, which pays a lump sum once the insured's life expectancy is certified as short -- typically 12 or 24 months -- with no activities-of-daily-living trigger at all. Both shrink the death benefit; only the long-term-care rider pays for chronic care over time.

Florida's long-term-care rules

Florida regulates long-term-care insurance in its own part of the code. A long-term-care insurance policy must carry a stamp prominently displayed on its first page showing that it has been approved as a "Long-Term Care Insurance Policy" meeting the requirements of Florida law, together with a prominent Notice to Buyer warning that the policy may not cover all of the long-term-care costs the buyer incurs and advising periodic review. An outline of coverage must be delivered at the time of application for an individual policy -- for direct response solicitations, on request but no later than policy delivery -- and it must state the principal benefits, the principal exclusions, reductions and limitations, any shortfall against the actual cost of services, the renewal provisions including any reserved right to change premiums, and that the outline only summarizes the policy. A certificate under a group policy must carry the same description of principal benefits and exclusions plus a statement that the group master policy governs. Finally, a long-term-care policy may not be canceled, nonrenewed, or otherwise terminated on the grounds of the insured's age or deteriorating mental or physical health -- the only escape is a statewide nonrenewal the Office may authorize for an insurer that shows renewal would jeopardize its solvency.