Life Insurance Learning: Accelerating Mastery With Focused Techniques

Life insurance is an agreement between you and your insurance company. You make regular payments, and the insurance company pays your beneficiaries a tax-free lump sum when you pass away. While term life insurance is the most popular choice due to its affordability, you can also access the policy's cash value to help pay for college tuition or a down payment on a home. If you have a terminal illness, you can also accelerate the death benefit to cover healthcare needs. This is known as an accelerated death benefit (ADB) and is a common feature of life insurance policies. ADB allows you to access a portion of your life insurance policy's payout early if you're sick, helping to cover medical bills and other expenses. While ADB is useful, it may affect your eligibility for Medicaid and reduce the amount your beneficiaries will receive.

How to accelerate the death benefit for healthcare needs

Life insurance is a contract between an insurance company and a policyholder, where the insurer guarantees to pay a sum of money to the policy's beneficiaries when the insured person dies. The policyholder must pay a premium regularly or a single premium upfront for the policy to remain in force. While term life insurance policies expire after a certain number of years, permanent life insurance policies remain active until the insured person's death, provided the policyholder continues to pay the premiums.

Now, to accelerate the death benefit for healthcare needs, you can consider the following:

Understand Accelerated Death Benefit Riders:

Accelerated Death Benefit (ADB) riders are additional benefits that you can add to your life insurance policy. This rider allows you to access a portion of your life insurance policy's payout early if you become terminally ill or are diagnosed with a critical or chronic illness. The money from the accelerated death benefit can be used to cover medical bills, long-term care, or any other expenses.

Check with Your Insurance Provider:

Not all insurance companies offer accelerated death benefits, and the eligibility criteria may vary. Contact your insurance provider to understand their specific requirements and conditions for accelerating the death benefit. Some companies may offer this benefit for terminal illnesses as a built-in feature, while others may charge a higher premium for adding it as an optional rider.

Evaluate Your Health Condition:

To qualify for an accelerated death benefit, you will typically need to provide proof of your health condition. This usually involves a medical examination and disclosure of any pre-existing medical conditions. The insurance company will assess your health to determine your life expectancy and whether you meet the criteria for accelerating the death benefit.

Understand the Impact on Your Policy and Beneficiaries:

Keep in mind that accessing the accelerated death benefit will reduce the death benefit that your beneficiaries will receive upon your death. The amount you can withdraw early varies by insurer but is typically a percentage of the total death benefit. Consider your financial needs and the potential impact on your beneficiaries when deciding how much of the death benefit to access early.

Be Aware of Tax Implications:

In most cases, the accelerated death benefit is tax-free. However, there may be tax consequences if you choose to receive the benefit in installments, as the payouts could accrue interest, which may be taxed as income. Consult with a tax professional or accountant to understand the specific tax implications for your situation.

Explore Alternative Options:

If accelerating the death benefit is not feasible or does not fully meet your healthcare needs, consider other options such as dipping into the cash value of a permanent life insurance policy, purchasing long-term care insurance, or exploring a life insurance settlement if you are 70 or older.

Understanding the living benefits option

Living benefits are financial benefits that life insurance policyholders can access during their lifetime. The two main types are cash value and living benefit riders.

Cash Value

Cash value accounts grow over time and can be accessed through withdrawals or secured loans. Permanent policies often come with cash value components, which you can withdraw from or borrow against. The cash value of permanent life insurance serves two purposes. It is a savings account that the policyholder can use during the life of the insured, and the cash accumulates on a tax-deferred basis.

Living Benefit Riders

Living benefit riders are endorsements you can add to a life insurance policy for extra benefits. For example, a rider could allow you to access your death benefit if you become chronically ill or disabled. Living benefit riders allow you to receive some or all of your death benefit if you become sick or disabled. Adding living benefits to life insurance usually increases the cost of coverage.

Living benefit riders come in many forms, including:

• Terminal illness rider: Allows you to withdraw some or all of your death benefit if you're diagnosed with a terminal illness. To be eligible, insurers typically require that a medical professional estimates your remaining life expectancy under a certain amount of time, such as less than 24 months.
• Chronic illness rider: Allows you to withdraw a portion of your death benefit if you're diagnosed with a chronic illness. Insurers have guidelines defining when you can file a chronic illness claim. For example, many insurers require a healthcare professional to confirm that you can't perform two of the six activities of daily living, such as feeding yourself and bathing.
• Critical illness rider: Similar to the chronic illness rider but applies to a specific list of illnesses and health conditions, including strokes, heart attacks, kidney failure, paralysis, and cancer.
• Long-term care rider: Allows you to use your policy's death benefit to pay for long-term care expenses such as home health care services, fees to stay in an assisted living facility or nursing home, and costs to pay friends or family members who provide you with care.
• Disability waiver of premium rider: If you become totally disabled, this rider waives your premiums. As a result, you can maintain life insurance coverage while disabled without the need to make any additional payments.
• Return of premium rider: This is a distinct kind of term policy that returns the premiums paid into your policy at the end of the term (assuming you don't pass away, in which case the death benefit is paid out instead). This type of term life policy can be significantly more expensive than the typical term policy.

How to Get a Life Insurance Policy With Living Benefits

If you're interested in a life insurance policy with living benefits, start by identifying which living benefits you want. Next, shop around with life insurers to find those that offer the living benefits you want and sound like a good fit overall. Then, collect quotes from a handful of insurers and compare the offers. Look for insurers that include living benefit riders in the base life insurance coverage. For example, many include terminal illness riders at no cost.

Comparing term life insurance rates

Understanding Term Life Insurance:

Term life insurance is a popular choice due to its affordability and the level of protection it offers. It provides coverage for a specific period, such as 10, 15, 20, or 30 years. The living benefits option, which allows you to access a portion of the death benefit if you suffer from a chronic, critical, or terminal illness, is also gaining popularity.

Factors Affecting Term Life Insurance Rates:

When comparing term life insurance rates, several factors come into play. These include:

• Age and Health: Generally, younger and healthier individuals obtain the best rates. Age is a significant determinant of life expectancy, which directly impacts the cost of insurance.
• Death Benefit Amount: The higher the death benefit you request, the higher the premium you can expect to pay.
• Term Length: Longer-term policies tend to be more expensive than shorter ones.
• Insurer and Underwriting: Different insurers may offer varying rates for the same coverage. The underwriting process, which assesses the risk of insuring you, also influences the rate.

Steps to Compare Term Life Insurance Rates:

• Gather Personal Information: To obtain accurate quotes, you'll need to provide personal details such as age, weight, height, smoking status, and other health-related factors.
• Shop Around: Compare rates from multiple insurers to find the best deal. It's recommended to get quotes from at least three or four companies.
• Compare Coverage and Extras: Ensure you're comparing policies with similar coverage amounts and term lengths. Also, consider the additional features and riders offered by each policy.
• Use Comparison Tools: Online comparison tools allow you to generate quotes from multiple companies at once, making it easier to see the differences in rates and coverage options.

Examples of Term Life Insurance Companies and Their Offerings:

• Transamerica Living Benefits: Offers three accelerated living benefit riders for chronic, critical, and terminal illnesses. The maximum death benefit that can be accelerated is 90% or $500,000.
• Prudential Term Essential & Term Elite: Features a free accelerated death benefit rider for nursing home confinement and terminal illness. It allows for the acceleration of up to 70-80% of the policy death benefit.
• Cincinnati Life Insurance LifeHorizons Termsetter: Includes a free accelerated death benefit rider for terminal illness and nursing home confinement, with a maximum acceleration of 50% or $250,000.
• American National Signature Term Life Insurance (ANICO): Provides accelerated living benefit riders for chronic, critical, and terminal illnesses, similar to Transamerica.

Additional Considerations:

When comparing term life insurance rates, keep in mind that your lifestyle choices, such as smoking or engaging in risky activities, can impact your rates. Additionally, while term life insurance is generally more affordable, permanent life insurance offers additional features like cash value accumulation, providing lifelong coverage at a higher cost.

The pros and cons of accelerated death benefits

Accelerated death benefits (ADB) are a feature that can be added to a life insurance policy, allowing the policyholder to receive a portion of the death benefit in advance if they are diagnosed with a terminal illness. ADBs are also referred to as "living benefits" and were originally introduced in the 1980s to help alleviate the financial pressures of those diagnosed with AIDS.

Pros of Accelerated Death Benefits:

• ADBs allow the policyholder to have access to a portion of their death benefit while they are still alive, which can be used to cover medical treatments, care costs, or other expenses.
• ADBs are typically not taxed as income.
• Many insurers include ADBs for terminal illnesses as a built-in feature at no extra cost.
• ADBs can help ease financial stress for the policyholder and their loved ones during a difficult time.

Cons of Accelerated Death Benefits:

• ADBs will reduce the amount of money received by beneficiaries after the policyholder's death.
• ADBs are only available to those who are terminally ill or, in some cases, chronically ill, and have a life expectancy of two years or less.
• Generating a lump sum through an ADB may change the policyholder's financial status and affect their eligibility for government assistance programs such as Medicaid and Supplemental Security Income.
• The tax implications of ADBs are not always clear-cut, and there may be tax consequences depending on how the benefit is paid out.
• ADBs do not replace health insurance or long-term care insurance and are not meant to be a substitute for comprehensive coverage.

How to get affordable life insurance

Life insurance is a contract between an insurance company and a policy owner. The insurer guarantees to pay a sum of money to the policy's beneficiaries when the insured person dies. In exchange, the policyholder pays premiums to the insurer during their lifetime.

• Choose term life insurance: Term life insurance is the simplest and cheapest type of policy. It covers you for a set number of years and is designed to cover you while you have financial dependents or obligations, such as paying off a mortgage or raising children. Permanent life insurance, on the other hand, is significantly more expensive as it lasts your entire life and has a cash value component that grows over time.
• Opt for a medical exam: If you're relatively healthy, choose a policy that requires a life insurance medical exam. Without these health details, insurers will consider you a higher risk, and your premiums will be more expensive.
• Buy a policy as soon as you need it: Life insurance companies offer their best rates to young, healthy applicants. As you age, your risk of health issues increases, and your life expectancy decreases, so buying coverage early will help you secure a lower rate.
• Don't smoke: Using tobacco and nicotine products is linked to health issues such as cancer, respiratory disease, and diabetes. Smokers almost always pay more for life insurance. If you're in the process of quitting, you can still apply for a policy, but your coverage will be priced at smoker rates. You may be able to request a review of your rates once you've quit for a certain period.
• Only buy as much coverage as you can afford: Calculate how much life insurance you need, then get quotes from multiple insurers. Choose a policy that fits your budget, or reduce your coverage to the highest amount you can afford. It's better to have some life insurance than none, and you can always purchase more coverage later when you're in a better financial position.
• Improve your health: As part of the life insurance application, insurers will assess your body mass index (BMI) and other health metrics such as cholesterol and blood pressure. Maintaining a healthy BMI and good health metrics will help you access lower premiums.
• Manage any pre-existing medical conditions: If you can prove that you're managing your condition by going to regular check-ups, taking your medication, and following your doctor's orders, you may be able to score standard or preferred rates.
• Skip unnecessary riders: Riders are extra features that can be added to your policy to bridge gaps in your coverage. While some are free, others will increase your premium. For example, adding a return-of-premium rider, which reimburses you for the premiums you paid if you outlive the term, can make your policy much more expensive.
• Ask about discounts for annual payments: Some insurers charge an additional service fee for frequent payments. If you can afford to pay your premium annually, you may be able to save money.
• Compare quotes from multiple insurers: With over 800 life insurance companies in the US, it's worth comparing quotes to find the most affordable policy for your needs.

Frequently asked questions