What is a 'Dread Disease Rider'

A dread disease rider is a unique addition to a life insurance policy. The rider provides the policyholder a percentage of the death benefit for diagnoses of severe diseases. Diseases include, but are not confined to, cancer, kidney failure, organ transplant, or myocardium heart disease. 

A dread disease rider will usually expire when the holder reaches age 65 and specifies which illnesses the policy will cover. This coverage is also known as catastrophic or critical illness coverage.​​​​​​​

BREAKING DOWN 'Dread Disease Rider'

​​​​​​​Most life insurance policies will allow the addition of a dread disease rider. These additions to the policy will use the death benefit as the basis of coverage, and the funds paid will deduct from the total available death benefit amount at the policyholder's death. 

Other, more comprehensive, types of health insurance will cover most medical expenses, although co-payments, deductibles, and other out-of-pocket costs may limit the benefits. The costs associated with critical diseases can be substantial, cause financial distress, and even bankruptcy., thus necessitating dread disease rider insurance. 

Money from a dread disease rider is typically used to offset the costs associated with the medical treatment of the disease. Usually, the policy payout is a lump sum amount. However, the policy may be structured to pay out a regular, monthly income. Benefits may payout to cover charges to the policyholder if they must undergo a surgical procedure, or need a second opinion.

Riders will have specific stipulations about when the amendment will go into effect. In some markets, the definition of a claim for many of the diseases and conditions have become standardized to encourage all insurers to use the same claims definition. The standardization of claims definitions serves many purposes, including increased clarity of coverage for policyholders and greater comparability of policies from different offices.

Limitations on Dread Disease Riders

Not every disease is allowable under these individual riders. Types of ailments include life-threatening forms of cancer, Alzheimer’s disease, Parkinson’s disease, heart disease, loss of limbs, organ transplants, paralysis, blindness, coma, and others. Further, there is coverage for some disorders in women but not in men, such as breast cancer.  

Improvements in technology and the methods used for diagnosing and treating many diseases have changed over time. The financial need to cover some illnesses, deemed critical a decade ago, is no longer considered necessary today. Just as some of the conditions, covered with riders today, may no longer be needed a decade in the future. The actual conditions covered depend on the market need for the coverage. Competition among insurers, as well as the policyholder's perceived value of the benefits, offered, also play a part in offerings. 

Dread disease rider contracts will contain specific rules that define when a diagnosis of a critical illness is considered valid. It may state that a physician who specializes in that illness or condition make the determination. Another stipulation may be that a specific test, or series of tests, confirm the diagnosis.

Most riders will not take effect immediately but will have a waiting period, which is usually 90 days. Also, most dread disease riders require the policyholder to survive a minimum number of days, known as the survival period, from first diagnoses of the illness. The survival period varies by company, but 14 days is the standard survival period. 
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