Because Life is Full of Surprises
Having life insurance in place can allow your clients the peace of mind in knowing that those they love and care about will not have to face financial hardship in the case of the unexpected. While the obvious value for most people who have life insurance is the death benefit that the policy can provide, there may be times when additional cash is needed.
Preparing for Unexpected Illness
According to the American Cancer Society, there will be an estimated 1.7 million new cancer cases diagnosed and more than half a million cancer deaths in the U.S. this year.
The American Heart Association reports that cardiovascular disease is the leading cause of death globally, accounting for more than 17.3 million deaths per year. By 2030, that number is expected to exceed 23.6 million.
Furthermore, the U.S. Department of Health and Human Services says the average cost for long-term care in the U.S. exceeds $6,000 per month for a semi-private room in a nursing home and $3,000 per month for care in an assisted living facility.
Many people simply are not prepared for a chronic, critical, or terminal illness. They think that just because they have a health insurance or disability plan, they’ll be sufficiently covered in case of a sudden or serious health problem, such as a heart attack, stroke, or cancer diagnosis. The fact is that’s probably not true.
The Living Benefits Rider
Some term life insurance policies offer an add-on called “living benefits.” In the event of a long-term, catastrophic, or terminal illness, these benefits can be accessed while the policy holder is still alive.
As its name suggests, a living benefits rider on a life insurance policy can allow the insured to access funds from the death benefit while he or she is still living. (This benefit is also frequently referred to as an accelerated death benefit rider). These funds that are obtained by the insured may be used for any need that the individual sees fit, such as the payment of medical (or other) bills, the payoff of debt, or even for taking a nice vacation. In most cases, the result of accessing such funds can help to make the insured’s remaining days more comfortable.
A living benefit on a life insurance policy is an option added to the life insurance contract which enables the policy owner to apply for an advanced payment on the death benefit during the lifetime of the insured. This option generally becomes available if the insured is diagnosed with terminal illness or other severe medical conditions that limit life expectancy to under 24 months. The amount paid under the living benefit rider is typically between 25-100% of the policy’s death benefit and any benefit remaining at the time of death would then be granted to the policy beneficiaries less any life insurance company fees for the advanced payment.
How Does it Work?
Although living benefits riders can vary from state to state, and from one insurance company to another, in general, this rider will entitle the policyholder to an early, or “accelerated,” payout of the policy’s death benefits.
The amount of benefit that can be received can range from a certain percentage of the total, or even the entire amount of the policy’s proceeds. To qualify for this payout, the insured will typically have to have been diagnosed with an illness that deems their life expectancy to be one year or less. In some cases, this rider must be added at the time of policy issue, and in others, it may be added to the policy at a later time.
If a life insurance policyholder takes advantage of these living benefits, it is important to note that the amount of money that is accessed will be counted against the amount of the death benefit that is eventually paid out to the policy’s beneficiary at the time of the insured’s passing.
How Much Does it Cost?
The cost of a living benefits rider can vary, based on the policy and the offering insurance company, as well as the age and health condition of the insured at the time that the rider is being added.
If this rider is chosen, it may be purchased through additional, regular premium payments. Alternatively, some insurers may simply require a one-time fee for this rider. There are also some instances when there will be no additional premium outlay required to obtain the living benefits rider.