Spotlight on Critical Illness, Accidental Death, and Long Term Care Insurance

Companies vary in the selection of benefits they offer employees.  Core benefits available to all full-time employees typically include paid vacation and/or sick days.  Other benefits, such as health, life, disability or long term care insurance may also be available, often on an elective basis.   In these cases, the employee may be required to take action to enroll, and be responsible for paying some or all of the premium.  Let’s explore some popular optional benefits, and how they interact with more traditional core benefits and long term care insurance. Critical Illness Critical illness policies typically pay out a lump sum cash payment if the policyholder experiences one of the critical illnesses explicitly listed in the insurance policy. Some policies require the satisfaction of a ‘survival period,’ a minimum number of days the insured must survive from diagnosis.  Examples of covered occurrences might include: heart attack/bypass surgery, cancer, organ transplant. Note that the schedule of payments in the policy has no direct correlation to medical expenses incurred (such as found in health insurance), or income lost (such as disability insurance).  Although the typical one-time payment is well-suited to mitigating the initial shock and costs of traumatic medical events, this model may be becoming increasingly obsolete, as individuals live for years, not weeks, with what was once a terminal diagnosis.  Once the acute need for medical care ceases, a prognosis involving diminished physical and/or mental capacity may carry costs of its own beyond medical expenses.   These costs can include lost wages, the inability to further fund retirement accounts, and the cost of long term caregivers. Modern medicine’s steps forward are likely to make disability and long term care insurance even more important. Accidental Death Policies Accidental death policies – like their close relatives accidental death benefit riders; pay out only if the cause of death is accidental.  These policies may be compared to the large lottery jackpots that occasionally make the mainstream news.  The cost is so small that there are a lot of takers.  Why is the cost so low?  Because the likelihood of dying by a cause deemed to be an accident is so low! Surviving spouses and loved one suffer an economic loss no matter what the cause of death, so these policies, though great in the right circumstance, should not be a foundational part of a life insurance plan.   Additional Caveats Accidental death policies and critical illness coverage may not be portable – or affordable – when employment ends.  In contrast, long term care insurance (LTCi) – which provides a benefit when extended care is needed – is a great example of coverage designed to be kept for life (or until a claim arises).   LTCi claims usually occur after age 80, and the contract terms and premium are not tied to employment or age. Summary Long term care insurance is there for policyholders whether actively at work or retired…whether the triggering cause is accidental – or not…and whether or not the cause for benefit trigger is included in a laundry list of covered maladies.  Typically, the only excluded malady is a claim related to alcoholism – check your policy. By tying benefits to the existence of a loss (loss of ADLs and severe cognitive impairment) instead of the cause of the loss, the likelihood of collecting is much higher.  Policyholders can sleep secure in the knowledge that they have taken a prudent course to protect themselves if they need care from a disease or accident during working years or in retirement – whether the problem arises accidentally, appears on a special list – or...