You know term life insurance provides death benefit financial protection for your spouse and family. However, and this is a new feature some insurers have added, you may not know that life insurance can be used for financial help when the insured has a critical or a chronic illness. Here is how the new, living benefits riders add value to term life insurance for seniors:
What are the New Living Benefits Riders?
Accelerated Living Benefits riders are offered by a few insurance carriers on their life insurance policies for seniors. The way the Accelerated Living Benefits Rider works is that the insurance carrier allows you to take out part of the money from your death benefit early if you have a qualifying medical condition. Clearly, these benefits do not replace Long Term Care Insurance. They do not offer the same amount of protection, but they can provide an additional layer of financial security during a prolonged critical illness.
What's the Cost for the Living Benefits Riders?
Some carriers charge nothing. These Living Benefits Rider won't cost you any extra money on your premium! It will afford you a significant peace of mind if you are at all worried about how you would pay for expenses during an illness. Most carriers charge a nominal monthly fee for these benefits.
Each company has slightly different requirements to access the cash and different allowances for the amount you can request. Of course, taking the money out early reduces your death benefit. However, the Accelerated Living Benefits Rider gives you the option to determine when the cash benefit will be most valuable to your family.
In the past, policy owners in need of cash to pay for daily expenses during a critical illness were often forced to sell their policies, sometimes for as little as pennies on the dollar. The insured received the money they needed to live, but when they died, their family received no benefit. The Living Benefits Rider gives you a better option...you get the money you need to live, and your family still receives a payout when you die.
What Kind of Health Conditions are Covered?
There are three different Accelerated Death Benefits, each of which has different provisions for how much money can accessed. (These numbers are examples from specific insurance companies. The amounts will differ from insurer to insurer.)
- Terminal Illness: allows 100% acceleration of policy death benefit amount up to the initial face value (up to $500,000).
- Chronic Illness: allows an annual maximum of 24% acceleration of the policy death benefit, up to 90% of the face value of the policy. In addition, the amount available depends on the severity of the illness and the age you are when claiming the benefit.
- Critical Illness: allows a maximum election of 90% of the policy death benefit. The amount allowed is based on the severity of the illness, its impact on life expectancy, and age at claim.
What are the Specific Illnesses Covered?
This list is for example only. Every carrier has it's own specific list and requirements.
- Terminal Illness: This means the policy owner has a life expectancy of 12 months or less.
- Chronic Illness: Means you are unable to perform two of the six activities of daily living without assistance or being severely cognitively impaired for a period of at least 90 days. The six activities of daily living are bathing, continence, dressing, toileting, eating and transferring.
- Critical Illness: May include heart attack, stroke (not TIA's), internal cancers and melanoma, en-stage renal failure, major organ transplant, amyotrophic lateral sclerosis (ALS), blindness due to diabetes, paralysis due to loss of use of two or more limbs.
How Can I Find Out if I Qualify?
Accelerated Living Benefits are not available in every state, and are not offered on all term life insurance for seniors. To find out if you can qualify for a life insurance policy that has these riders you should speak to an independent life insurance agent. There is a separate form with medical questions you will have to complete to apply for this rider.
The Bottom Line
Your best source for information about term life insurance for seniors is an independent agent who specializes in people over 50. There are several options available with life insurance to protect you and your family from chronic, critical or terminal illness. As industry experts, an independent agent can guide you to the carrier who offers you the best life insurance protection available to you.