Speak with an experienced advisor! If you are confused by the term life insurance with living benefits, you have come to the right place.
How you can life insurance benefit you while you are alive?
Living benefits via term life insurance policies may be offered via one of these various endorsements to the policy:
Terminal Illness Riders
Critical Illness Riders
Chronic Illness Riders
Life Insurance with Living Benefits
Living Benefits when associated with life insurance policies refers to riders that can be attached to certain life insurance policies to enhance them and allow them to be used during the life of the insured. As opposed to the death benefit were the beneficiary only receives money upon the death of the insured.
To be clear, each insurer, offers up their own version of what they offer. Some living benefits may include one item at a certain level while another insurer may not offer that very same feature. To add further more confusion to the mix, many insurers have their own exact marketing terms for these three or four features / endorsements.
Our article here is focused on Living Benefits for Term Insurance not Living Benefits for Whole Life Insurance, which can be somewhat to dramatically different. Also the state of the side of industry is in flux and significant change would not be surprising.
Living benefits via term life insurance policies may be offered via one of these various endorsements to the policy:
Terminal Illness Riders
Chritical Illness Riders
Chronic Illness Riders
Living Benefits: Terminal Illness Riders
The Terminal Illness Rider is for situations when you are deemed to have a short time to live due to an illness, often 12 months or less. A terminal illness rider is just what it sounds like, you will more than likely die so the insurer will release a portion of the money (lump sum) early in case you wish to use the proceeds for an expensive medical procedure or some other reason. The lump sum may be a percentage of the policy in force or may be a percentage of the death benefit.
Living Benefits: Critical Illness Riders
A critical illness rider will typically pays out one specific lump sum if you are diagnosed with a "critical" life threatening health issue. These usually include cancer, ALS, stroke, heart attack. Each carrier maintains their own exact list in the policy document. The lump sum may be a percentage of the policy in force or may be a percentage of the death benefit.
"Even with exceptionally good medical insurance, the cost of treatment can far exceed your benefits." Says Doug Mitchell in his article: What is Critical Illness Insurance and Chronic Illness Insurance? The point being that just having health insurance may not be enough.
Living Benefits: Chronic Illness Rider
Chronic illnesses are often much less clear. They require a physicians diagnosis you that you are unable two specific activities (which are laid out in the contract.) The policy could (depending on the exact verbage in the life contract) pay out a certain specific lump sum amount. Your physician is not sole determiner or who qualifies for this and specific conditions must be laid out.
Living Benefits: Nursing Home Living Benefit Rider:
Nursing Home Riders. also known as Long Term Care riders are sometimes a feature of cash value life insurance policies and not term policies. However we add them here for the sake of directly dealing with the subject. A Long Term Care Rider may allow money to be paid out in the situation where you are confined to a nursing home within strict accordance to the insurance contract.
Long Term Care (LTC) Insurance policies are very expensive so it should come as no surprise that a Long Term Care rider is not cheap either. Because Long Term Care insurance has become very difficult to even find, LTC riders paired with Whole Life Insurance Contracts may be a best bet in this situation.
The Cost of Living Benefits:
Depending on the riders that you are choosing the cost can range from nothing to significant. Sad as it is to say - often the costs of these things are difficult for consumers to find out. Often the terminal illness rider can be available by default and/or free depending on the carriers.
The Positives of Living Benefits:
Life Insurance with living benefits sounds very grand and it can be. The living benefits can allow you to use some of the money that you might otherwise not get until you die, to be used early and in certain situations.
If you only have one insurance policy, living benefits can somewhat serve as a pseudo living policy, however not in the way that a long term care policy can. If the cost for the rider / endorsement are low than living benefits can in theory be a cheap way to provide some additional coverage in certain situations.
The Negatives of Living Benefits:
By their very nature living benefits when attached onto term insurance policies are always secondary considerations and not themselves the sole purpose of the policy. There is where the issues often lays.
Since many of these riders are not free, the value add to them can be minimal in proportion to what you may receive from them. Often the language contained with them are relatively strict and narrow resulting in the endorsement being unusable in many situations.
Another major considerations and area of concern with these tools is that they can in some situations end up leaving not insured when you wanted to be insured. In other words, the purpose of life insurance is to leave your beneficiaries a death benefit amount in case of an untimely death. However if 50% of the death benefit has already been paid out for cancer treatment you may be leaving your children with half of what they truly need.
Life Insurance with Living Benefits - More Details:
The topic of living benefits with term policies is one in which the exact details and definitions are much more based on the insurer and their policy language. That is my professional way of saying that this topic is not as similar from policy A vs policy B. Hence it is a more difficult topic to generalize and write about.
There are numerous other life insurance endorsements that are not under this same general headline that are similar enough worth noting:
Accidental Death and Dismemberment: This is a rider/endorsement that pays an additional sum to the policy if you die be the definition of an accident, according the policy.
Waiver of Premium Rider when Disabled: This may allow you to waive (not pay) your premiums if you become disabled in accordance with the insurance contract definitions.
Both of these riders seem to me at least to be in close connection with the stricter definitions of living benefits.
Thank you for reading our article about living benefits with term insurance. For more information - kindly please contact us either via email at sales at marindependent.com or via the comment box below.
