Living Benefits

Life insurance is much more than what you may think it is. You no longer have to die to get benefits.

Your life Insurance policy could provide you money while you are alive if you suffer a:

  • Critical Illness such as a heart attack, stroke, become diagnosed with cancer, MS, Parkenson’s, renal failure…up to 16 different illnesses.
  • Long Term Care services at home, in assisted living, in a nursing home. Available if you can not perform two of the following activities of daily living without support: Bathing, Transferring, Eating, Toileting, Continence, Dressing or have a cognitive impairment such as Alzheimer’s or Dementia.
  • Terminal Diagnosis You are diagnosed with a condition that will likely cause your death within 6-24 months.

The money you would receive comes from the face value (death benefit) of your life insurance and is TAX FREE.

How it works:

Suppose you suffer a heart attack at age 44. You’re going to survive, but have a rough recovery period. The life insurance company will obtain your medical records to determine the severity of the attack. If it is considered a moderate heart attack, they might offer you 35 percent to 40 percent of the death benefit. That could be $100,000 of a $250,000 policy. If it is considered severe, 50 to 70 percent might be available.

Take for example, an insured who is stricken with breast cancer and needs chemotherapy, or another who is diagnosed with Parkinson’s disease, which, over time, will diminish her ability to work. How helpful would it be to those people if they could tap into the death benefits of their life insurance policies while they are alive to ease their financial burdens?

How Much?

How much of the death benefit can the insured gain access to? There is no easy answer to this question. It depends upon the severity of the triggering event and a formula the carrier calculates, which takes into account past and future premiums, life expectancy of the insured, and the type of coverage held.

If it is considered a moderate impairment, the carrier might offer 35 percent to 40 percent of the death benefit. That could be $100,000 of a $250,000 policy. If it is considered severe, 50 to 70 percent might be available. Life expectancy is the key. The shorter the life expectancy, the more dollars available.

There are a couple of different plan designs if the client accepts the payment. Some carriers will terminate the policy if the client accepts the payment, while others will allow the death benefit to continue but at a reduced amount.

This could include a remaining death benefit that is lower than the original, minus the living benefit payment. The key point? In either design, the policy owner has the final say. If he does not accept the living benefit payment, the policy continues as normal. If he chooses to accept payment, he could terminate the remaining coverage or keep a reduced amount.

The allure of living benefits

Many consumers find living benefits highly desirable. They provide an answer to the question most of them have: “What’s in it for me?” Most people can relate to having a heart attack, cancer or another critical illness, or they have a family member or friend who has suffered from a critical illness or needed LTC services. In my office alone, we have recently been touched by family members who have suffered a stroke, another who is receiving treatment for breast cancer, and another has been diagnosed with Parkinson’s. Even a woman in her early 20s has been diagnosed with ovarian cancer. Critical and Chronic illness touch us all and to have access to life insurance death benefits while still alive is highly appealing.

Term Insurance or Permanent?

Living benefits are available on both term or permanent insurance. Some term policies with living benefits are very competitive…often just a few dollars more then coverage that only pays upon death.

While the LTC/chronic illness rider might be available on a term policy, I would not suggest a client consider the term contract as a solid long-term-care insurance plan. A client could easily outlive a term contract and become eligible for an LTC claim after the term contract ends. If the client wants a LTC/chronic illness rider, I suggested that he buy a permanent life insurance policy.

I see little wrong with advocating a split policy concept. The client can obtain term coverage with living benefits during his income-earning, high-expense and-exposure years, and permanent coverage with living benefits when it is affordable to address the LTC needs he could have in his 70s and 80s.

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