Even with the best plans, sometime life throws you a curveball – such as a serious illness or condition. Living benefit riders allow you to access money from your life insurance policy while you’re still alive, to help pay the bills in the event of a chronic, critical, or terminal illness.
Standard Life Insurance
As you probably know, life insurance is designed to protect your loved ones upon your passing. It provides a lump-sum payment, known as a death benefit, which can be used to cover funeral expenses, pay off your debt and/or replace your income. The two primary types of life insurance policies are permanent life insurance and term life insurance.
Living Benefits
Living benefits are a game-changer. They help provide additional layers of protection for you and your family, should you become chronically, critically, or terminally ill.
You can include living benefits in your life insurance in two ways:
The first option is to choose a permanent or universal life policy with living benefits when you are applying for coverage: This option has been around for a while and is the most expensive. A permanent policy can increase in value year over year and you can borrow against the cash-value in certain situations. These benefits need to be included from the start – you can’t add them to your policy later.
The other option (and the one that has us really excited!) is to take advantage of the newly offered term life policies that have living benefits BUILT INTO the policy. Yes! These policies are really cool – let’s talk more about them.
Term life insurance with living benefits (known as an accelerated death benefit riders) have all of the benefits of standard term life policies – they are less expensive than a permanent policy, simple to maintain, and easy to get – plus they include the accelerated death benefit riders, which may pay out a portion of your death benefit while you’re still alive. This accelerated payout can be used to help pay for the costs of treatment for qualifying illnesses or conditions – or any other expenses.
Three Most Common Accelerated Death Benefit Riders
Chronic Illness Accelerated Death Benefits Rider
Chronic diseases such as heart disease, stroke, and cancer are among the costliest health problems in the US.* If you were to be diagnosed with a qualifying chronic illness during the term of your life insurance policy, you could receive up to 100% of your coverage amount to help you pay for treatment or to replace lost income.
A qualifying illness is an illness or physical condition that was diagnosed by a licensed health care practitioner within the past 12 months and either affects your ability to perform at least two Activities of Daily Living (ADLs; which include bathing, dressing, and eating) or causes you to require substantial supervision by another person due to severe cognitive impairment.
Here’s a quick run-down of the difference between living benefits and long-term care insurance. An accelerated death benefit is part of your life insurance policy which allows you to accelerate some or all of the death benefits of your policy should you meet the qualifications. The accelerated benefits can be used for your medical expenses, monthly bills, or other expenses, but the amount is finite. Once you’ve reached the maximum, however, you’ll stop receiving benefits. If you use the entire value of your policy, the policy will be terminated.
Long Term Care insurance is designed to protect your savings and give you more choices for care. It provides coverage for diagnostic, preventative, therapeutic, rehabilitative, maintenance, or personal care services provided in a setting other than an acute care unit of a hospital, such as a nursing home, extended care facility, skilled nursing facility, home health care, and more. Long Term Care insurance is not designed to replace your income or pay for other medical expenses.
Critical Illness Accelerated Death Benefits Rider
Should a licensed physician determine that you have a critical health condition, you could be eligible to receive accelerated benefits, again up to 100% of the policy value.
Qualifying critical illnesses or conditions typically include heat attack, major organ transplant, stroke, invasive cancer, blindness, end stage renal failure, paralysis, ALS or Lou Gherig’s disease.
Terminal Illness Accelerated Death Benefits Rider
This one’s actually not new and is a common benefit to include in term life policies. A terminal illness is considered an illness or physical condition that is diagnosed and certified by a physician to be reasonably expected to result in your death within 24 months. In this case, you could accelerate some or all of your base life insurance benefits.
A Few Things to Discuss with Us
Since living benefits use your death benefits, any acceleration of your death benefits will reduce, or eliminate the value of your policy. Depending on the amount you accelerate, or how much you use your living benefits, there could be less (or no) benefit paid to your loved ones after you pass away.
Benefits may be subject to limitations, waiting periods and/or state restrictions. Also, the benefit amount is based on your condition, not your specific need. We can walk you through all the information on your contract, and how this type of policy fits in with your other layers of protection.
Contact Us to Learn More
There’s no one-size fits all option when it comes to insurance. Life Insurance, Long Term Care Insurance, Disability Insurance, Health Insurance…they all have their purposes and limitations.
If you have questions about life insurance with living benefits and if they may be right for you, please call me at (413) 230-6665 or email me at jeff.b@spectrum-ins.com. I specialize in getting to know my clients and evaluating their needs so I can find the most appropriate solutions for them at the best possible price, and I'm interested in all things life insurance and disability insurance.
*Centers for Disease Control and Prevention