Living Benefits, also commonly referred to as “Accelerated Benefits” are becoming very popular as a selling benefit for life insurance companies. In a world where consumers often assume insurers are heartless, the living benefits of a Term Life insurance policy can actually become a life-saver. Although some of the new policies have the Living Benefits built into the policy, many companies use the rider or “add-on” method to make them available to consumers.
Q: How do living benefits work?
A: The living benefit in the term insurance policy provides that some or all of the death benefit be paid to the insured (not the beneficiary) in the event that the policyholder is diagnosed with a terminal illness, a medical incapacitating condition, or must go into a long-term care program. When one of these medical events takes place, the living benefit is triggered and the insurance company will expedite the benefit in a lump-sum payout to the insured.
Q: Does the insurance company charge for the living benefit?
A: Many insurers do not charge an additional premium for the living benefit, although, some do charge a small percentage of the base premium for the rider. For the companies that do not charge an additional premium, they will typically hold back a portion of the payout if the benefit is triggered to cover administrative costs and loss of interest earnings. The amount held back typically amounts to 10 or 20% of the death benefit, so an insured with a $100,000 policy would receive $80,000 or $90,000 in immediate cash to help deal with their medical situation.
Q: What types of insurance policies offer the living benefits?
A: Until recently the living benefit rider was available only on permanent insurance policies such as Whole Life and Universal Life, but Term Life insurance products are now being offered with the living benefit. Although the insured must typically choose the living benefit rider at the time of purchase, some companies today are allowing the rider to be added as long as the policyholder is healthy.
Q: What conditions trigger the living benefit?
A: The triggers vary depending on the insurance carrier, but they usually fall into one or more of the following categories:
• A diagnosed terminal illness with death expected in six to twelve months
• The onset of a catastrophic illness that requires extreme intervention such as an organ transplant or the need for continuous life support services.
• The need of the insured to have long-term care due to the inability to perform a number of activities required for daily living such as eating, going to the bathroom, or bathing and dressing.
• Permanent confinement to a nursing home.
Q: This sounds like a viatical settlement. Are they the same?
A: No. A viatical settlement is when you sell your life insurance policy to a Viatical Settlement company because you have become terminally ill, have gotten very old, or no longer need the policy. In these cases, the viatical settlement company will purchase your policy for about 50 to 80% of the death benefit. The viatical settlement company becomes the beneficiary of your policy and will receive the full death benefit when the insured eventually dies. These settlement companies are not regulated in every state like a life insurance company so the policyholder will need to complete their due diligence before agreeing to the sale of their policy.
Term Life insurance policies have historically only offered a death benefit for the policyholder. Since the industry has become very competitive, the consumer will benefit as the insurance companies begin to offer more bells and whistles in their policies in order to separate their products and stay in the front of the pack of their competition.