Life Benefit Riders – Get on Track
June 19, 2014| Von Joe Atamaniuk, MBA, FLMI
Living benefit riders, or accelerated death benefit riders (ABR), have been around the life insurance arena for many years, but as the industry looks for ways to attract new customers, their use has intensified recently.
There are three different kinds of riders: terminal illness, critical illness and chronic illness.
The terminal illness rider is designed to allow policyholders to accelerate a portion, or the entire face amount, of their life insurance policies when they’re diagnosed with a terminal illness with a short life expectancy, typically 12 or 24 months.
Critical illness riders, on the other hand, are aimed at providing a benefit to insureds who survive a critical illness event, such as heart attack, cancer, stroke, renal failure or major organ transplant.
Chronic illness is a relatively new rider concept, but the benefit itself has been around for many years in the form of Long Term Care insurance.
These riders are commonly added to the base life policy at no additional charge, and this "no-charge" rider design has been particularly successful in promoting life cover to the middle market. Applicants see it as a way to receive added benefits for no additional cost; in reality it is frequently not claimed because the applicant doesn’t want to reduce the death benefit.
However, there are unfortunately other occasions when a lawsuit ensues because the insured disagrees with the discounted offer made by the company.
So while living benefit riders are an opportunity for life insurance providers to increase sales, either in existing markets or in the ever-elusive middle markets, they do have various potential risks associated with them-making pricing, underwriting controls and additional analysis a must when assessing the living benefits.