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Living Benefits Term and Whole Life Insurance Riders

Researcher & Writer
September 24, 2017

Today people are living longer, which is a good thing, but what happens if you outlive the money you’ve set aside for your retirement due to complications with your health? This is a grim but important thing to think about today, rather than in the future when your health may have already began deteriorating.

Chronic Illness, Terminal Illness & Critical Illness Riders

How can life insurance help?

It may come as a surprise, but certain life insurance policies can actually help you not only provide for your family after your death, but for your own needs while you are alive. The number one way a life insurance company can help you prepare for your (living) future is through a living benefits critical illness rider.

What is a living benefit rider?

There are different types of living benefit riders for either term life or whole life: terminal illness, critical illness and chronic illness.

Terminal illness rider

A terminal illness rider is a part of a living benefits life insurance plan that allows you to access the cash value of your policy prior to your demise in the event that you have a terminal illness. Sometimes this is included in your life insurance policy and other times you may have to pay more to add it on. In some instances, you may have to pay more only if you want to have more flexibility in what your terminal illness rider can and cannot do.

How a terminal illness riders works: upon being diagnosed with a terminal illness with a life expectancy of one or two years, depending on the carrier, the carrier will pay out to the policy owner up to 50-75% of the face amount of the policy with a cap typically around $500,000. For example, someone diagnosed with a terminal form of cancer can access his or her policy for up to $500,000. This money can then be used for various things including hospice, health care, medical bills, gifts to family, paying off debt, etc...

Chronic illness rider

A chronic illness rider is similar to a terminal illness rider, though for other serious health problems which may not necessarily be terminal. In order to be determined chronically ill, a person must be unable to perform two of the six ADLs (activities for daily living) without help from another person or be mentally impaired. The six ADLs include eating, dressing, going to the bathroom, bathing, holding your bladder, and walking.There is a 90 day waiting period. However, the 90 day period is typically waived for cognitive impairment.

How a chronic illness rider works is the policy owner can access a portion of their death benefit in a lump sum to cover expenses. There are even chronic illness riders that offer additional benefits, such as the owner receiving a stream of monthly payments up to 100 percent of their remaining death benefit.

Critical illness insurance

Critical illness insurance can be a stand alone policy or life insurance rider. Critical illness insurance pays out a lump sum cash benefit payment if you are diagnosed with a critical illness, such as heart disease, stroke, paralysis, kidney disease or cancer.

*Please note, this is a general overview of accelerated benefit riders and not specific to any particular company.

How do life insurance living benefits riders work?

When you buy a term or whole life insurance policy with the appropriate living benefits rider attached you will be able to choose how much of your policy will be accessible prior to your death and under what circumstances. Usually, a rider allows you to access 50% or 75% of your policy.

In some cases, you may have a rider that allows you to access 100% of your policy prior to your death. There are often stipulations for accessing such a large amount of money, such as having cognitive impairment or being completely reliant on a caregiver.

Once you are diagnosed with a serious illness, you may contact your life insurance company to access your rider benefits. You will then need to determine how you will receive the policy money, and if that is the best course of action to take.

This money will help you to cover your medical expenses, lifestyle needs, and other needed arrangements including health care. Buying a policy with a rider will help you prepare you for your greatest time of financial need.

What if I am already chronically ill?

Any kind of health issue makes obtaining life insurance very difficult. If you are lucky enough to get covered while battling chronic illness, it is not likely that you will qualify for rider coverage. That’s why it is very important that you have life insurance prior to having major health concerns. Even if you are not so lucky as to have a policy before a chronic illness strikes, you would be doing your loved ones a huge favor by advising them to get their own life insurance coverage today!

Is my policy money taxable?

Typically, life insurance benefits are not taxable. However, all states have different tax laws, so it is important that you speak with a tax or legal advisor to know the taxation rules for rider policies. It is possible that you will have to pay tax on your policy. You may also jeopardize public funding like Medicare and Medicaid. That’s why you should speak with an expert.

Is a living benefits rider right for me?

Whether or not you think you want a rider is a personal preference. Some people may be in a financially good place with great medical care that will run well into their 80s. Other people may have more uncertain futures. Getting a term life insurance policy or whole life policy with a critical illness rider is really up to you and your particular need. However, be aware that not all life insurance policies come with a terminal illness or chronic illness living benefits rider.

If you are trying to decide whether or not to get a whole or term life insurance policy with living benefits rider, then why not call TermLife2Go? We can help give you the facts about policies from dozens of different life insurance companies throughout the United States. Some of them have riders, some of them don’t. We will also take the time to get to know your personal situation in order to help you assess whether it’s a good idea or not.

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