Insurance policy features and terms can sometimes be confusing and difficult to understand. One of the commonly confused Long Term Care Insurance (LTCI) policy terms is contingent nonforfeiture. Especially when you hear two versions of nonforfeiture: contingent nonforfeiture and a nonforfeiture rider.
First, we’ll explain what contingent nonforfeiture is and how it benefits policyholders. Then, we’ll discuss what makes the nonforfeiture rider different.
What Is Contingent Nonforfeiture?
Contingent nonforfeiture is a built-in consumer protection feature on tax-qualified LTCI policies. It protects policyholders in the event of a carrier rate increase.
If an insurance carrier raises their rates on a block of business, and an insured cannot afford the increase, contingent nonforfeiture allows the insured to receive partial benefits. Insureds are only eligible for partial benefits under this clause if their policy lapses due to a rate increase.
"Contingent nonforfeiture is a built-in consumer protection feature on tax-qualified LTCI policies."
What Is the Nonforfeiture Rider?
The nonforfeiture rider takes it a step further. It’s an insurance rider that protects insureds in the event they miss a premium payment and their policy lapses. If a policy lapses due to lack of payment, the nonforfeiture rider allows the insured to receive a portion of the benefits or a partial refund based on the premiums paid before the policy lapsed.
This clause is most often found in life insurance and long term care insurance and is available for an added expense as a “rider.” In essence, the nonforfeiture rider is insurance on insurance.
Carriers may have restrictions on how many years your policy must be inforce before you are eligible for nonforfeiture benefits. If you are interested in this protection, make sure you understand specific carrier requirements.
Can I Have Both?
Of course, but both are not required. Contingent nonforfeiture is a standard feature on an LTCI policy and the nonforfeiture rider can be added for an additional cost if you’re worried about lapsing your policy for any reason other than a carrier rate increase.
In some cases, adding the nonforfeiture rider could change or eliminate your contingent nonforfeiture benefits. Review specific carrier policies and features to understand how these benefits work.
"If a policy lapses due to lack of payment, the nonforfeiture rider allows the insured to receive a portion of the benefits or a partial refund based on the premiums paid before the policy lapsed."
Is Non-Forfeiture Right for Me?
Each person’s financial situation can be different. To find out if the Non-Forfeiture rider is right for you, we suggest speaking with a Long Term Care Specialist.
During a personal long term care planning session, you can discuss your retirement goals and financial obligations to discover how much coverage fits within your budget. In addition, they can help you can decide if built-in contingent nonforfeiture is enough protection or if the nonforfeiture rider could benefit you.
Curious what Long Term Care insurance costs? Speak with a LTC Specialist to customize your plan to meet your needs and budget.
LTC Consumer is an independent, free online service to help consumers understand what long term care insurance is, how it works, and how to evaluate coverage options. Our mission is to provide an educational, no-pressure resource for learning about long term care planning, with the opportunity to speak with specialists who can help them.