The main reason most of us buy life insurance is to protect our loved ones if we die. But what happens if you get a heart attack, have a stroke, or get cancer, and you don’t die? How do you have access to the death benefit of your life insurance policy? Having life insurance with living benefits just solved that problem. These types of policies will provide you with a portion of the death benefit, should you find yourself in this unfortunate situation.
Related: Life insurance riders.
What Is Life Insurance with Living Benefits?
Life insurance with living benefits is a rider (provision) that is added on to most life insurance policies at no additional cost to you. This allows the policyholder to access a portion of the death benefit while he/she is still alive.
It is also called an accelerated death benefit because you can cash in on some of your death benefit amount, if you have 6-24 months left to live, depending on the insurance company and the policy. Most companies put a limit on the amount that can be accelerated (accessed in advance), which is typically 25-75% of the death benefit.
Which Factors Qualify for Living Benefit Acceleration?
The living benefit conditions are different from one company to another in when they start paying, what they consider a terminal or qualifying event, and the amount that they let you accelerate.
However, most are similar in the following conditions: in order to qualify for a living benefit, you must experience chronic, terminal, or critical illness. Let’s take a look at each one of them.
Chronic Illness Accelerated Benefit Rider
This rider allows the policyholder to accelerate a portion of the death benefit if the insured is unable to perform at least two of the six Activities of Daily Living (ADL). The activities include bathing, dressing, toileting, transferring, continence, and eating. Some policies require supervision by another person to protect health and safety due to severe cognitive illness.
Critical Illness Accelerated Benefit Rider
This rider allows the policyholder to accelerate a portion of the death benefit if the insured is diagnosed with a qualifying critical illness such as:
Terminal Illness Accelerated Benefit Rider
This rider allows the policyholder to accelerate a portion of the death benefit if the insured is diagnosed with a qualifying terminal illness. A terminal illness condition must be certified by a physician, with the policyholder having 6-24 months left to live from the date of diagnosis.
Why Choose Life Insurance with Living Benefits?
For the obvious reason, you don’t need to die to use a portion of the death benefit. The reality is that death is rarely a quick process. Usually it is a long daunting process and involves financial burden, bills, and loss of work. While death will always be the ultimate sadness in our culture, the process itself may be more painful.
Two years of chemotherapy, for example, can put many people out of work by taking care of the sick individual, and a life insurance policy that has living benefits may be the most important rider on your policy. It will not only free everyone financially, but may even give you more time to spend together as a family, such as taking a trip abroad, or quitting work to be together.
What Happens If I Use My Living Benefits?
In most cases, the accelerated benefit amount you use is considered as a lien, which accrues interest. When the policyholder does pass, the beneficiary will receive the total death benefit minus the accelerated amount that was used. For instance, if you bought a $250,000 life insurance policy and used $200,000, the beneficiary will get $50,000. It’s important to remember that the more you request through accelerations, the less that will be available at the time of the insured’s death.
Living Benefits Exclusions and Limitations
Be sure to read and understand what you are buying!
- Many riders aren’t available in all states
- Some insurance companies don’t allow living benefits riders if the policy was issued at a higher risk table. This typically means you were not at the best of health when you bought the policy
- It isn’t offered to all ages
- It is not offered on all death amounts
- Not all insurance companies offer it
- Some riders are extra and require you to pay more
If you thought a life insurance policy couldn’t be used while you are alive, this may have given you something to ponder. Most people think about life insurance as a vehicle to protect others while they are gone, but life insurance with living benefits is more about your life than your death. Money alone will never be the ultimate source of happiness and fulfillment, but lack of it in times of sickness and uncertainty will sure make it harder to smile. If you are looking for life insurance, ask us about a living benefits add-on to the policy.