Life Insurance: Living Benefits Explained

Life insurance with living benefits is a type of insurance that provides financial protection to the policyholder while they are still alive. This is different from traditional life insurance, which only benefits loved ones after the policyholder passes away. Living benefits can be accessed in two main ways: through policy riders or cash value life insurance. Policy riders are add-ons to a policy that provide additional protection, such as allowing the policyholder to receive part of the death benefit if they are diagnosed with a serious illness. Cash value life insurance, on the other hand, is a permanent life insurance policy that accumulates cash value over time, which can be used to supplement retirement income or cover expenses. While living benefits offer an extra layer of financial security, they often reduce the policy's death benefit for survivors.

Living benefit riders

• Accelerated death benefit rider: This rider allows the policyholder to receive an advance of a portion of the policy's death benefit if they are diagnosed with a terminal illness. The money can be used to cover medical bills, pay off debts, or create memorable experiences with family.
• Disability waiver of premium rider: This rider waives the premiums for the policy and any eligible riders if the policyholder becomes totally disabled. It helps prevent the life insurance policy from lapsing due to non-payment of premiums.
• Long-term care rider: This rider covers the cost of long-term care, such as a nursing home or in-home nurse, as the policyholder ages. It is usually attached to more expensive whole or permanent life insurance policies.
• Disability income insurance rider: This rider acts like long-term disability insurance and provides a monthly stipend to replace a portion of the policyholder's income if they become disabled and unable to work.
• Critical illness rider: This rider provides benefits to cover treatment for critical illnesses specified in the policy contract, which could include any number of medical conditions that are likely to limit the policyholder's life expectancy.

Terminal illness

Living benefits can be accessed through a rider, which is a supplemental benefit that can be added to a life insurance policy. A terminal illness rider, also known as an accelerated death benefit rider, allows the policyholder to receive a portion of their death benefit if they are diagnosed with a terminal illness. This benefit is intended to cover expenses such as medical bills, debt, and other expenses. The money can also be used to take a dream vacation or create other memories with loved ones.

The exact amount of the accelerated death benefit will depend on the insurance provider and the specific policy. In some cases, the policyholder may be able to access up to 100% of their death benefit, up to a maximum amount (e.g., $1,000,000). However, it's important to note that accessing the living benefits of a life insurance policy will typically reduce the death benefit that is paid out to beneficiaries after the insured's death. Additionally, there may be interest charged on the accelerated death benefit, and failure to pay this interest could result in the termination of the policy.

When considering a terminal illness rider, it's important to review the specific conditions that must be met to access the benefit. Different insurers may have different life expectancy timelines and requirements for when the policy must be in force before the living benefit can be accessed. It's also important to understand the tax implications of receiving accelerated benefits, as they may be considered a taxable event.

Chronic illness

Living Benefits for Chronic Illness

Living benefits are a type of life insurance that provides benefits to the policyholder while they are still alive. This is in contrast to the more traditional form of life insurance, which only pays out benefits to loved ones after the policyholder has passed away.

Living benefits are especially useful for those with a chronic illness, as they can provide financial support to cover medical expenses and other costs associated with long-term care.

How it Works

Living benefits for chronic illness typically come in the form of riders that can be added to a standard life insurance policy. Riders are supplemental benefits that provide additional coverage for specific needs, and often come at an extra cost.

The specific benefits offered by living benefits riders vary depending on the insurance provider, but they generally allow policyholders to access a portion of their death benefit if they are diagnosed with a chronic illness. This money can be used to cover medical expenses, debt, or other needs.

Types of Riders

A chronic illness rider provides benefits if the policyholder can no longer perform at least two out of six activities of daily living: bathing, dressing, using the toilet, transferring (to or from bed or chair), caring for incontinence, and eating.

Long-term Care Rider

A long-term care rider covers expenses for nursing home care, home health care, and other long-term care needs for people who can no longer perform at least two activities of daily living.

Accelerated Death Benefit Rider

An accelerated death benefit rider allows policyholders to access a portion of their death benefit if they are diagnosed with a terminal illness. This money can be used to cover medical expenses and other costs.

Costs and Considerations

Living benefits riders typically come at an additional cost, and this cost varies depending on the insurance provider and the specific rider. It's important to carefully review the terms and conditions of any rider before adding it to your policy.

Additionally, it's worth noting that accessing living benefits may result in a reduction of the death benefit that your loved ones will receive after your passing. It's important to weigh the immediate benefits of living benefits against the long-term impact on your beneficiaries.

Shopping for Living Benefits

When shopping for living benefits for chronic illness, it's important to compare quotes from multiple insurance providers. The cost and availability of living benefits can vary significantly, and you'll want to find an insurer that offers the best coverage for your specific needs.

It's also a good idea to work with an independent insurance agent or broker, as they can help you navigate the complex world of insurance and find the most suitable policy for your situation.

Critical illness

The benefits of critical illness insurance include the peace of mind that comes with knowing that you are financially protected in the event of a serious illness. It can help alleviate the worry of how to pay for critical medical services and treatments, as well as daily living expenses. This allows the policyholder to focus on their health and recovery, rather than financial stress.

However, it is important to note that critical illness insurance has limitations and exclusions. The policies generally only cover a narrow range of specific illnesses, and there may be stipulations regarding the circumstances under which a policy will pay out. For example, some types of cancer or chronic illnesses may not be covered, and there may be restrictions based on the age of the policyholder. As with any insurance policy, it is important to carefully review the terms and conditions before purchasing.

In summary, critical illness insurance can provide valuable financial protection and peace of mind for individuals and families facing a serious illness. By helping to cover the high costs of medical treatment and daily living expenses, this type of insurance allows policyholders to focus on their health and recovery. However, it is important to carefully review the terms and conditions of any policy before purchasing to ensure it meets your specific needs.

Long-term care

When considering long-term care insurance, it is important to keep in mind factors such as budget, assets, overall financial condition, and long-term financial goals. The rates for long-term care insurance depend on age, health, gender, marital status, insurance company, and the amount of coverage desired. Additionally, it is worth noting that long-term care insurance rates are not guaranteed to remain the same over time and may increase.

One way to address the concern of potentially wasting money on long-term care insurance is by combining it with life insurance. This way, policy benefits will always be paid out, either for long-term care or as a death benefit. This option is particularly valuable for those who want to ensure they receive a benefit from their insurance policy.

In summary, long-term care insurance is an important consideration for individuals, especially those in their 50s and beyond, as it provides financial protection for the potential need for long-term care services. It helps bridge the gap between health insurance coverage and the costs associated with long-term care, allowing individuals to protect their savings and have more choices for care.

Frequently asked questions