What are living benefits?

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When purchasing life insurance, you may hear an agent mention the term ‘living benefits’ or ‘accelerated death benefit.’ In short, these terms refer to money that, under certain circumstances, you are eligible to receive from the policy while still living.

The three types of ‘living benefits’ are terminal illness, critical illness, and chronic illness.

Terminal Illness Benefit

If you are diagnosed with a terminal condition, the terminal illness benefit allows you to accelerate a portion of the death benefit to help pay for treatments or daily living expenses. Most term life insurance policies include a terminal illness rider, but the values may vary depending on the company.

For example, in order to become eligible to receive benefits, most companies require that you are diagnosed with a condition that gives you a 6 to 12-month life expectancy. However, some policies extend the life expectancy requirement up to 24 months, which could make a big difference in the amount of benefits you are eligible to receive.

In addition, the total value of this feature may be different depending on the company. One company may cap the total benefits at $250,000 or $500,000, while another company may allow you to take 90% of the death benefit, up to $1,000,000.

Critical Illness Benefit

This benefit provides coverage for medical emergencies such as cancer, heart attack or stroke. Standard health insurance plans often cannot cover all of the costs associated with these conditions, and the critical illness rider allows your life insurance plan to provide additional coverage.

The critical illness benefit is not standard on most term life insurance policies. Products that include the critical illness rider and/or chronic illness rider may cost more than a term product that does not include these benefits.

Chronic Illness Benefit

The chronic illness rider allows you to accelerate a portion of the death benefits to pay for long term care expenses if you develop a chronic condition (through illness or injury) that prevents you from performing at least 2 of 6 Activities of Daily Living (ADLs). The 6 ADLs are:

  • Bathing
  • Transferring (walking)
  • Eating
  • Dressing
  • Toileting
  • Continence

Severe cognitive impairment is also covered under a chronic illness rider.

Without insurance, the cost of long term care can be financially devastating. But if you have a large death benefit in a policy that includes a chronic illness rider, you may be able to use this kind of policy to pay for chronic illness expenses for multiple years, and the benefit triggers are the same as on a traditional long term care insurance plan.

Term and IUL With Chronic Illness Benefits

If your goal is to secure a life insurance plan with chronic illness benefits, it is possible to find this type of coverage on a term policy. There are several companies who offer these benefits on their term products, and more companies are expected to follow this trend in the future as the traditional long term care insurance industry continues to struggle.

It is also possible to secure chronic illness benefits on a universal life insurance policy (fixed or indexed). If funded correctly, the IUL allows you to build cash value in the policy over time, increasing the death benefit and the pool of chronic illness benefits.

Conclusion

It’s a good idea to ask your agent about the living benefits that are available on the life insurance products he or she is quoting.

The terminal illness and critical illness riders on life insurance policies can provide financial relief for specific types of medical conditions that may not be fully covered by your health insurance plan. The terminal illness rider is usually standard on term life insurance policies, while the critical illness rider may cost extra.

Some policies provide a Chronic Illness Rider, which can help pay for costs associated with long term care. These types of policies are becoming more popular because consumers know they need coverage, but they also don’t want to risk being subjected to volatile premium increases associated with traditional long term care insurance plans.

In addition to term and IUL products, there are single-premium hybrid long term care insurance plans, which provide substantial long term care benefits as part of a life insurance policy. These policies are also known as ‘asset-based long term care insurance.’

At Hybrid Policy Advisor, we provide quotes and financial guidance for people who are looking for life insurance policies with living benefits, especially for those who want to secure coverage for chronic illness expenses.

If you would like to learn more, please call 1-866-365-6558, or email bob@hybridpolicy.com

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