Term Life Insurance with Living Benefits

One of the biggest knocks on term life insurance is that it only offers a benefit if you die.  In other words, there are no living benefits while the policy is in force.  Although that is the case for many term life insurance policies on the market today, there are some companies that offer term coverage that also includes benefits should you become terminally ill, chronically ill or suffer a critical illness.  If you are looking for a term life policy with more comprehensive coverage, a policy with living benefits might make sense.  Here is a general overview of term life insurance with living benefits.

What Types of Illness are Covered?

 There are three main conditions that are covered by living benefit riders on term life insurance:

Terminal Illness Rider: There are many companies out there that include a terminal illness rider in their basic term policy.  A terminal illness rider will accelerate the death benefit if you are diagnosed by a doctor as having  a terminal illness with a life expectancy of anywhere from 12-24 months (depending on the insurance company).  You will be able to access your death benefit up to a certain percentage (depending on the insurance company) to use as you wish.  This is an important rider as it will allow you to plan for your family’s future and handle important financial obligations before you pass away.

Chronic Illness Rider – If you suffer a chronic illness and are not able to perform 2 of the 6 activities of daily living or if you become cognitively impaired (e.g. Alzheimer’s, irreversible dementia), you will be able to accelerate your death benefit to help pay for your care.   The 6 activities of daily living are:

• Bathing
• Continence
• Dressing
• Eating
• Toileting
• Transferring

In most cases, in order to access the chronic illness rider, your chronic illness must be expected to last for the rest of your life.  Most chronic illness riders have annual limits on the amount of death benefit that can be accelerated and an overall limit of how much of the total death benefit can be accessed.

Critical Illness Rider – If you suffer a critical illness such as stroke, heart attack or invasive cancer, to name a few, you will be allowed to accelerate a portion of your death benefit.  This will allow you to have the funds necessary to make care and recovery more manageable.

You can also purchase life insurance that has a long term care rider attached, but we will focus on terminal illness, chronic illness and critical illness riders in this post.

Important Factors to Know About Living Benefit Riders

• Rider Terms are Company Specific – Each company sets its conditions required to qualify for access these riders as well as the percentage of death benefit that will be accelerated. It is important to know exactly how each rider works before purchasing a policy with living benefits.
• Riders are NOT Available in All States – Riders require state approval. Check with your agent to determine if any of the riders are available in your state.
• The Cost of These Riders Varies – Some companies offer these riders standard on policies while others allow you to add the riders for an additional cost.
• Some Benefits May be Taxable – For the most part, many of these benefits can be received without tax consequences, but it’s important to note that some benefit payments might be taxable. It is best to consult with a tax professional to determine which benefits could be taxable.
• Fees and/or Adjustments Will Apply – There are a couple of important factors concerning fees and adjustments that you need to be aware of if you access any of these riders. An administrative fee will most likely apply once you access the rider benefit.   Administrative fees vary with each company but are normally in the range of a few hundred dollars.  The amount of benefits you receive from any of these riders will most likely be subject to a present value adjustment.  Since you are receiving part of your death benefit early, the amount received will be discounted to determine the present value of future benefits.  The adjustment will also take into consideration your life expectancy after your critical, chronic or terminal illness is diagnosed.
• Your Death Benefit will be Reduced – Any funds that are received under these riders will reduce the death benefit proportionately.

Should You Purchase a Term Policy with Living Benefits?

A term life insurance policy with living benefits such as a chronic illness rider and critical illness rider may be a sensible product for many.  It could be especially important for those who expect to have a term policy that will last into their 60’s.  Although policies that have these riders included do cost a bit more than many of the policies that do not, they are still competitively priced when compared to the overall market.  These riders provide additional peace of mind above and beyond a death benefit.  If you are looking for a comprehensive term life insurance policy that includes living benefits, we can help.  We know which companies offer these types of policies and will be able to give you a quote based on your particular situation.  If you have any questions about term life insurance with living benefits, please feel free to give us a call at 888-687-9444 or email us at info@archstoneagency.com.

About Us

Archstone Insurance Services, LLC is an independent agency that shops over 40 of the top life insurance carriers to provide huge savings on life insurance coverage for our clients.  We are happy to answer any questions you might have about any of the insurance products we offer, your planning needs or your existing coverage.  Feel free to call us directly at (888) 687-9444 or email us at info@archstoneagency.com.