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 2022.
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.
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.
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.
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 vary by the insurance company).
Additionally, some policies will advance a portion of the death benefit to help pay for long-term care costs.
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.
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 the waiting period and at what age the rider will expire.
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:
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 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.
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 in a permanent life insurance policy are typically paid under the Long-Term Care Benefit Rider and are typically only available on a permanent life insurance policy like whole life and universal life.
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.
The amount of the death benefit advanced via the long-term care rider is deducted from the death benefit that is available to the beneficiary when the policyholder eventually dies.
Depending on the insurance company you purchase your policy from, the insured is afforded several options in receiving benefits after a claim is filed. The primary terms and conditions that an applicant should be concerned about are:
These are the insurance companies we recommend for permanent life insurance with a Long-Term Care rider:
| Company | Nationwide | Guardian | John Hancock |
| Rider Name | LTC Rider II | Long Term Care Rider | LTC Rider |
| Qalifications | Unable to perform 2 ADLs and/or needs substantial supervision due to cognitive impairment. | Unable to perform 2 ADLs and/or needs substantial supervision due to cognitive impairment. | Unable to perform 2 ADLs and/or needs substantial supervision due to cognitive impairment. |
| Products Available On | IUL Accumulator II IUL Protector II NLG-UL II VUL Accumulator VUL Protector | Life Paid-Up at 95 Protection UL Life Paid-Up at 99 Life Paid-Up at 121 10 Pay WL 15 Pay WL 20 Pay WL Life Paid-Up at 65 | All single life permanent products (DBO 1 & 2) |
| Issue Ages | Ages 21-80 | Ages 18-70 | Ages 20-75 |
| Underwriting Classes | All classes up to 5 Tables, no flat extras; rider based on morbidity | Same as product; no substandard ratings, temporary, or permanent flat extras; rider based on morbidity | Not available if rated higher than 200% or issued w/ a flat extra; rider based on morbidity |
| Elimination (waiting) Period | 90 calendar days | 90 calendar days | 90 calendar days |
| Type of Benefit | Cash Indemnity | Indemnity | Reimbursement |
| Benefit Amount | Mo. benefit: lesser of 2, 3, 4% of LTC specified amount or HIPPA daily amount times days in month. Lifetime max: = to lessor of LTC Specified amount and base policy Specified amount minus policy indebtedness. | Min. pool: $50,000 (WL), $90,000 (CAUL) Max pool: lesser of 90% of DB or DB less $25kMax. lifetime pool: $2,500,000 Max mo. benefit: lesser of 2% of pool or 60x’s HIPAA per diem limit Benefit pool increases w/ Dividend Opt. I | 1%, 2%, or 4% Monthly Acceleration % Max monthly benefit: $50,000 Max amount: $5m (depending on Monthly Acceleration %) Benefit amount 1%-100% of initial DB |
| Benefit Uses | Home health care Nursing home Assisting living facility Adult day care center Other qualifying service | Home health care Adult day care Assisted care facility Long term care facility | Home health care Hospice center Assisting living facility Nursing home Adult day care center Stay at home services |
| Residual Death Benefit | After 100% of death benefit is used, 10% of original policy is death benefit is paid at death. | None | None |
| Additional Charge | Yes | Yes | Yes |
| Recertification Needed? | Annual review with recertification as reasonably necessary. | No | No |
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:
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.
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.
Since the living benefits available through the Accelerated Death Benefit are typically the same as 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.
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
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.
Advantages of Living Benefits with a Cash Value Policy
Disadvantages of Living Benefits with a Cash Value Policy
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.
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.
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.
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 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 Illness | Eligibility |
|---|---|
| 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:
Ameritas Life Insurance company has labeled its Accelerated Death Benefit rider Care4Life and has designed it to cover critical, chronic, and terminal illnesses.
| QUALIFYING ILLNESS | BENEFIT 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 is another highly-rated insurer that really stepped up in designing its Accelerated Death Benefit Rider and includes it in all policies automatically.
| Eligible Illness | Criteria |
|---|---|
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@li20210409.wpengine.com.
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