What is a critical illness rider?
A critical illness rider is a life insurance add-on that allows you to receive a portion of your policy’s payout if you are diagnosed with a serious health condition.
The definition of “critical illness” varies by insurer; however, this life insurance rider may kick in if:
- You have a heart attack or stroke.
- You’re diagnosed with cancer or kidney failure.
- You require a major organ transplant.
Critical illness riders are within the category of life insurance living benefits. These features allow you to take advantage of the money in your life insurance policy while you are still living.
How critical illness riders work
Like other life insurance riders, a critical illness rider must be added to your policy when you purchase it. You can’t add it later, even if you’re diagnosed with a medical condition that fulfills your insurer’s requirements.
To activate a critical illness rider, you must give documentation of your serious medical condition to your insurer. Once your rider is approved, you will be able to collect a portion of your policy’s death benefit up to a certain cash level. You will normally receive the payoff in one lump sum, though some insurers will allow you to collect it over time. You can use the money as you like, whether on medical bills, ordinary expenses, or in-home care.
A critical illness rider provides you with a way to earn extra money when you are unable to work due to medical expenses. The disadvantage is that it lowers your death benefit.
Assume you have a $500,000 life insurance policy with a critical illness rider that permits you to receive up to 25% of the death benefit (or $125,000) if you are diagnosed with a qualifying sickness. If you activate this rider, your survivors would only receive $375,000 — not $500,000 — if you died while the policy was in effect.
Alternatives to a critical life insurance rider
A separate critical illness insurance coverage is another possibility. This form of coverage pays out cash if you get extremely ill, which may be appropriate for people who want additional financial stability in the event of illness but do not want to compromise their life insurance death benefit. A stand-alone policy is also worth considering for folks who want critical illness coverage but do not want life insurance.
