One of the biggest reasons consumers purchase life insurance is that they can leave behind some financial security for their beneficiaries after they have passed away.

However, sometimes traditional life insurance does not cover all financial burdens, especially while the policyholder is living. Here, we’ll discuss Life Insurance with Living Benefits in 2021.

Fortunately, there is a solution! Living benefits that can be added to a term life insurance policy allow the policyholder to access their financial relief in times of a chronic or catastrophic illness.

This means that if the policyholder is diagnosed with a terminal or chronic illness or requires long-term care, the company’s accelerated benefit can be triggered to advance a large portion of the death benefit to the insured.

This should be a game-changer for all term insurance policyholders. You don’t have to die for your life insurance to be useful. If you are critically ill, you will have access to benefits that can help with the cost of your illness.

 

What are Living Benefits of Life Insurance?

 

Life is full of unexpected, disruptive, and unfortunate circumstances, and living benefits can assist with some of these disturbances.

The term “living benefits” means death benefits can be used before death. There are three common circumstances where the policyholder is able to use the benefit before actual death, and they are available on both Term Life and Permanent Life insurance policies.

 

Living Benefits for Term Life Insurance Policies

 

Depending on the insurer you choose to purchase your policy from, there are three essential riders that you should consider when shopping for term life insurance.

  1. The Accelerated Death Benefit Rider – The accelerated death benefit can be purchased as a rider if it is not already included in the core benefits of a policy.

This rider provides for the insurance company to advance a large portion of the death benefit to the insured if he or she is diagnosed with certain illnesses.

Depending on the policy you select, the insurance company can advance this benefit if the insured is diagnosed with a terminal illness, critical illness, or chronic illness (the illnesses covered varies by the insurance company).

Additionally, some policies will advance a portion of the death benefit to help pay for long term care costs.

  1. Return of Premium Rider – The return of premium rider (ROP) is always a purchased rider, and the additional premium is typically based on the age of the applicant.

This rider provides for the insurance company to refund all premiums paid into the policy if the insured outlives the term they have selected.

For example, if John Jones adds the ROP rider to a 30-year term insurance policy with a monthly premium of $75 and is alive when the policy expires, Mr. Jones would receive a lump sum payment from his insurer in the amount of $27,000 that is paid tax-free.

This rider is an excellent solution for policyholders that find it difficult to save for the future. The lump-sum payment can be used for any reason by the insured or can be invested for retirement.

Unfortunately, this rider has become a rarity in today’s marketplace.

  1. Disability Waiver of Premium – Statistics indicate that men and women are more likely to become disabled than die from age 25 to 50. Knowing this, the insurance industry designed the Disability Waiver of Premium where the insurer would waive all insurance premiums if the insured becomes critically ill or disabled.

The waiver of premium helps keep the life insurance in force until the insured is able to return to work or is able to start collecting disability benefits.

The terms and conditions of the disability waiver vary as to a waiting period and at what age the rider will expire.

 

Living Benefits for Permanent Life Insurance Policies

 

Most permanent life insurance policies that have a cash value component will allow the policyholder to access that cash to accommodate financial life events.

All Whole Life and Universal Life policies generally build cash value over time that consists of a portion of the insurance premium plus interest paid on the cash account.

This accessible cash is considered a living benefit, and the policyholder can access this cash in different ways:

  • Cash Withdrawals – Policyholders who need cash can simply withdraw a large portion of their policy’s cash value ( a withdrawal fee is generally charged).

It’s important to note that withdrawals will reduce the policy’s death benefit and could be considered a taxable event by the IRS.

  • Policy Loans – Policy loans are the most popular method for accessing the cash value in a life insurance policy and can be taken for any reason.

Policy loans typically result in interest charges, and the policyholder is not required to repay the loan since any outstanding loan and interest amounts will be deducted from the death benefit when the insured dies.

  • Policy Surrender – If a policyholder decides to cancel a permanent life insurance policy, the company will refund the value of the cash account less any surrender fee.

The surrender is taxed only on the interest earned in the account and not on the premium that is paid into the account by the insured.

  • Long Term Care Benefits – Long Term Care Benefits in a permanent life insurance policy are typically paid under the Accelerated Death Benefit that is generally built into all permanent life insurance policies.

This benefit is paid using a portion of the death benefit, does not have to be repaid, and is generally never a taxable event. The amount of the benefit varies by the insurance company, and if it is not a part of the core policy, it can be added as a rider.

 

Reasons to Purchase Life Insurance with Living Benefits

 

National statistics show that about 40 million people in America are currently suffering from various chronic diseases that limit one or more activities of daily living.

Insurance company actuaries and other experts expect this number to continue going up year after year. Although typically covered by health insurers, chronic illnesses create substantial additional costs for those afflicted because of the help required with daily living activities.

One only needs to consider all of the activities they do around the house or workplace that are not covered by health insurance to understand how essential living benefits in a life insurance policy can be. Here is a typical list of activities that a person with a chronic illness will need help with:

  • Cost of travel to and from healthcare providers and facilities
  • Cost of hiring home health care services
  • Cost of hiring home services like lawn care, pool care, and handyman services
  • Out-of-pocket expenses resulting from deductibles, copays, and coinsurance
  • Lost income if unable to work.

In many cases, when a person with a chronic illness is married, the spouse becomes the caregiver. But if a person with a chronic illness is single, many activities will need to be done by hiring a home health care service which can be very expensive.

 

When can a policyholder Access Living Benefits?

 

To be clear, the living benefits in a term life insurance policy that can trigger an advance of the death benefit are all part of the Accelerated Death Benefit rider.

The illnesses that are covered and that can trigger the benefit depend on the life insurance company and the terms and conditions of the rider.

For example, a terminal illness is an illness that will likely result in the death of the insured within 12 to 24 months. This means that a critical illness or a chronic illness that will likely cause death in 12 to 24 months is also a terminal illness.

The rider’s language will vary from company to company, so an insurance shopper needs to discuss these riders with the agent to understand better which illnesses are covered.

However, in every case, the insurance company will require proof of the illness diagnosis and if the prognosis will meet the terms of the rider before the insurer pays under the accelerated death benefit.

Typically, a terminal illness must result in death within 12 to 24 months. A chronic illness results in the loss of your ability to perform at least 2 of the Activities

 

Should I get Term Life Insurance with Living Benefits or Cash Value Insurance?

 

Since the living benefits available through the Accelerated Death Benefit are typically the same with a term life insurance policy and a cash value life insurance policy, either policy can provide these essential benefits.

If, however, you prefer to purchase a policy that contains a cash value component that earns tax-deferred interest, and you want the ability to access that cash to use as living benefits, then a cash value insurance policy would be an appropriate choice.

It’s important to note that cash value life insurance comes with a much higher premium than term life insurance, so if low-cost life insurance is a priority for you, then term life insurance will likely be the better choice.

Moreover, most term life insurance policies have a conversion option where you can convert all or a portion of the term coverage to permanent cash value life insurance without an insurability requirement.

This means that you can pay a lower rate for term insurance during the years when you need a substantial face amount but then convert that policy to a permanent policy in later years when you’ll likely need less life insurance.

In any of these cases, wouldn’t it be more comforting knowing that you are able to access your funds to help you through treatment and recovery? Of course, it would be! This is precisely what living benefits do. With living benefits, you are able to use these funds for whatever you need, such as for child care, paying your mortgage, or paying outstanding medical bills.

Interested in where these funds come from? The death benefit, of course! However, it’s important to note that this advancement in funds does reduce your life insurance death benefit.

Each life insurance provider evaluates your circumstances differently, looking at the severity of your condition and then making you an offer that’s in agreement with the terms and conditions of your policy.

This death benefit advancement is also tax-free. Keep in mind that you don’t ever have to take your carrier’s offer, and you can keep your life insurance death benefit intact.

 

What are the Pros and Cons of Life Insurance with Living Benefits?

 

All life insurance policies present pros and cons, which are generally related to the applicant’s need for life insurance rather than the product itself.

Your life insurance needs, especially the type of life insurance you purchase, should be directly related to the risk you intend to mitigate and not the cost of the insurance.

Typically, any insurance product, whether term life insurance or permanent life insurance with a cash value component, is going to be advantageous in some circumstances but not too much in others.

Advantages with Term Insurance Policies

  • The living benefits provided by the Accelerated Death Benefit rider, which includes an advance on your death benefit for terminal, critical, or chronic illnesses, are typically provided at no charge with several life insurance policies.
  • The return of premium benefit can be used by consumers who find it difficult to save regularly and are attracted to a tax-free lump sum premium refund if they outlive the term of their policy.
  • The advance from the insurance company is paid directly to the policyholder and then deducted from the death benefit if the insured dies during the policy period.

Disadvantages with Term Insurance Policies

 Since the insurance company is paying an advance on the death benefit, the policy’s death benefit is reduced by the amount of the advance if you die during the policy term.

  • An advance under the accelerated death benefit may be taxable in your state.
  • Most insurance companies charge a fee if you file a claim under the accelerated death benefit. Some companies will deduct the fee from the advance payment, while others will deduct it from the death benefit if you die during the policy term.

 Advantages of Living Benefits with a Cash Value Policy

  • Your cash value will grow over time and earn tax-deferred interest from the insurance company and dividends if the policy is participating (pays dividends to policyholders).
  • You can access your cash account via policy loans (no repayment required), cash withdrawals, or by surrendering your policy for cash.
  • Your cash value can be used as a tax-exempt retirement income.

 Disadvantages of Living Benefits with a Cash Value Policy

  • Withdrawals from a cash value policy will reduce the available death benefit to your beneficiary.
  • A surrendered policy will typically be subject to a surrender charge.
  • Unpaid policy loans and interest will reduce your death benefit on a dollar for dollar basis.

 

How Much Does Life Insurance with Living Benefits Cost?

 

Probably the best news in this article is that living benefits that are a result of the Accelerated Death Benefit are typically provided at no cost to the policyholder whether they are provided as an automatic benefit of the policy or added as a rider.

It’s important, however, to know how the accelerated death benefit can deviate from company to company and are strictly regulated in the state of New York and California.

New York

First of all, the critical illness benefit is not available in New York. Additionally, the chronic illness benefit requires the insured to complete a supplemental application, and certification of the diagnosis must be provided by the healthcare provider.

When a long-term claim is filed for a chronic illness diagnosis, the healthcare provider must also certify to the insurance company that continuous care is needed for the remainder of the claimant’s life.

Also, the total benefit paid for chronic illness long-term care cannot exceed the annualized per day amount that is in effect for the claimant’s long term care services.

California

In California, anyone over the age of 65 cannot have a chronic or critical illness benefit on their life insurance policy. The chronic illness benefit is not allowed on a term policy, whether automatic or added using a rider.

 

Companies that offer the Best Life Insurance with Living Benefits

 

There are many highly-rated life insurance companies that offer Living Benefits with their term insurance and permanent insurance policies. However, like in any industry, there are a few companies that offer a living benefit rider that has much more value to the consumer than the rest. Here are our top three:

 

American National

American National Life Insurance

 

 

 

American National is one of only a few insurance companies that offers an Accelerated Benefit Rider that will payout to the insured in two ways.

Partial Acceleration is paid in lieu of a portion of the policy’s death benefit.

Full Acceleration is paid in lieu of the policy’s full death benefit. In the case of full acceleration, the insured’s policy will be canceled after the accelerated benefit is paid.

In both scenarios, the accelerated death benefit may be paid to the insured in a lump sum or used to purchase an annuity that will provide income to the insured for a specified period of time.

Qualifying IllnessEligibility
Terminal Illness


• If an eligible insured has an illness or condition that is expected to result in death within 241 months or less.
• Available on all rate classes
Chronic Illness
• If an eligible insured is unable to perform 2 of 6 activities of daily living for a period of at least 90 days or requires constant supervision to pro tect from threats to health or safety due to severe cognitive impairment.
• The ADLs include bathing, continence, dressing, eating, toileting, and transferring.
Critical Illness Rider• If an eligible insured experiences a critical illness
• See rider for complete list of critical illnesses and definitions.

American National (ANICO) offers the Accelerated Benefit Rider with the following insurance policies:

  • Affinity 7 Whole Life
  • Signature Indexed Universal Life
  • ANICO® Executive Universal Life
  • ANICO Signature Term Life

 

Ameritas

Ameritas Insurance

 

 

Ameritas Life Insurance company has labeled its Accelerated Death Benefit rider Care4Life and has designed it to cover critical, chronic, and terminal illnesses.

QUALIFYING ILLNESSBENEFIT AMOUNT
Critical Illness - open
heart surgery, angioplasty or myocardial infarction, life threatening cancer, stroke, major transplant, end-stage renal failure
Up to 10% of the death benefit with a maximum of $25,000. Paid as a one-time payment.
Chronic Illness - inability to perform two of the
six activities of daily
living (dressing, toileting, transferring, continence, eating, bathing) or diagnosis of severe cognitive
impairment
Up to 50% of death benefit with a maximum of $400,000. Paid in annual payments up to HIPAA limits.
or
Up to 50% of death benefit with a maximum of $400,000. Paid in 2% installments over 50 months or 1% installments over 100 months.
Terminal Illness - life expectancy is 12 months or less
Up to 50% of death benefit with a maximum of $500,000. Paid as a one-time payment.

 

Foresters

Foresters Life Insurance logo

 

 

 

Foresters is another highly-rated insurer that really stepped up in designing its Accelerated Death Benefit Rider and includes it in all policies automatically.

Eligible IllnessCriteria

Chronic Illness
• Diagnosed by a physician as permanent, unable to perform at least 2 of the 6 activities of daily living for at least 90 days OR a severe cognitive impairment
• For any 12-month period, can accelerate up to 24% of the eligible death benefit at the time of the initial chronic illness claim

Eligibility Criteria
• Base face amount ≥ $20,000 or product’s minimum face amount • Insured issue age ≤ 75
• Standard premium rate classes
Claim amount is subject to an overall lifetime maximum of 95% of the eligible death benefit, up to $500,000

Critical Illness
• Life threatening cancer, myocardial infarction (heart attack), stroke, advanced Alzheimer’s Disease (before age 75), end stage renal failure, major organ failure, ALS
• Can accelerate up to 95% of the eligible death benefit at the time of each critical illness claim to a maximum of $500,000

Eligibility Criteria
• Base face amount ≥ $20,000 or product’s minimum face amount • Insured issue age ≤ 75
• Standard premium rate classes
Claim amount is subject to an overall lifetime maximum of 95% of the eligible death benefit, up to $500,000

Terminal Illness
• Non-correctable illness or physical condition which is reasonably expected to result in death within 12 months of diagnosis
• Can accelerate up to 95% of the eligible death benefit at the time of terminal illness claim to a maximum of $500,000

Eligibility Criteria
• Base face amount ≥ $20,000 or product’s minimum face amount • All ages
• Standard and sub standard premium rate classes
Claim amount is subject to an overall lifetime maximum of 95% of the eligible death benefit, up to $500,000

 

 

To get a complete rundown on the medical issues that will trigger living benefits in your policy and to find out how this can benefit you and your family, call us during normal business hours at 866-868-0099 or send an email to info@lifeinsure.com.

 

 

Richard Reich

CEO - Licensed Agent

Richard Reich CEO and Licensed agent

In my 20+ years as an independent life and disability insurance broker, I have personally assisted thousands of clients with their life and disability insurance needs.  Being independent, I represent many highly-rated insurance companies and, because I am not beholden to any one insurance company, my focus is to find the right company and policy for each individual client. I believe that when people shop for insurance (or anything else, for that matter) on the Internet, they are looking for a simple, non-intrusive, non-pressure method of doing so.  I strive to treat my prospective clients with the utmost respect and I believe an educated prospect can make the right decision without sales pressure. Please feel free to contact me at your convenience.

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For more information, call an insurance professional at LifeInsure.com (866) 868-0099 during normal business hours or contact us through our website.

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To get more information about purchasing life insurance with severe medical conditions, contact an insurance professional at LifeInsure.Com today at (866) 868-0099 during normal business hours, or you can contact us through our website 24/7.

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Speak to a Licensed Representative

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Email

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Richard Reich

CEO - Licensed Agent

Richard Reich CEO and Licensed agent

In my 20+ years as an independent life and disability insurance broker, I have personally assisted thousands of clients with their life and disability insurance needs.  Being independent, I represent many highly-rated insurance companies and, because I am not beholden to any one insurance company, my focus is to find the right company and policy for each individual client. I believe that when people shop for insurance (or anything else, for that matter) on the Internet, they are looking for a simple, non-intrusive, non-pressure method of doing so.  I strive to treat my prospective clients with the utmost respect and I believe an educated prospect can make the right decision without sales pressure. Please feel free to contact me at your convenience.

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