Key features of Chronical Illness Rider
- Benefits are available as a lump-sum payout, up to the IRS per diem limit
- Accelerated benefits can be taken once every 12 months
- No upfront cost – an actuarial discount and flat $100 fee are charged only if your client uses the benefit
- Maximum cumulative chronic illness benefit is up to 80 percent of the policy face amount at the time of the first acceleration request (with a maximum of $1 million)
What is the Actuarial Discount?
When insurance companies price the cost of life insurance, they plan on the beneficiary receiving the full death benefit upon the insured’s death. Since the insured is taking a portion of his or her death benefit early, you are getting an advance payment. The actuarial discount is based on the insured’s life expectancy and the Moody’s Corporate Bond Yield average, and it’s the insurance company's way of taking into account the time value of money between the advance payment date and the insured’s actual life expectancy (when the insured is expected to die). The shorter the insured's remaining life expectancy, the less his or her actuarial discount will be.
In next blogpost, we will show a case study of how it works.