Also known as an ‘accelerated death benefit’ living benefits are riders on your life insurance policy that allow you to file a claim on your life insurance policy before you die. You have to have a ‘qualifying event’ that would trigger this rider to kick in. Most often these riders are any number of the following:
- Terminal Illness Rider
- Critical Illness Rider
- Chronic Illness Rider
- Nursing Home Rider
Companies don’t offer all of these riders some companies will use the nursing home rider in place of the critical and chronic illness riders. The best situation is to find a company that will offer the mix of terminal, critical, and chronic illness riders. Let’s look at some details because not all riders are built the same.
Terminal Illness Rider
This is exactly what it sounds like. Terminal illness riders cover when you’re diagnosed with a terminal illness. Terminal illness has different definitions from company to company, but the definition is usually based on your life expectancy. Each company will have a specific time frame covered. The range tends to be 6 – 24 months. Obviously 24 months will be preferential to 6 months, but both make nice additions on to the policy.
Chronic Illness Rider
Most companies will define chronic illness as Severe cognitive impairment or inability to perform 2 of 6 activities of daily living. The 6 activities of daily living are bathing, continence, dressing, eating, toileting, transferring.
Many companies require a 90 day waiting period to confirm you have a long-lasting chronic illness, and not just a temporary condition.
Critical Illness Rider
This rider will often cover major illnesses like forms of blindness, major organ transplant, cancer, stroke, heart attack, end stage renal (kidney) failure. The conditions covered vary from company to company. These listed are pretty common on the riders. Other companies can cover issues like major burns, AIDS, Paralysis, arterial aneurysms, and more.
This rider can have a 30 day waiting period to confirm the status of the condition. This rider can be a huge deal for people who have early stages of diabetes. The disease can quickly deteriorate into some of these listed illnesses.
Nursing Home Rider
Nursing home riders often are meant to pay out if you transition into a nursing home and are expected to stay there until death. This is not for temporary confinement to a nursing home. This rider can have waiting periods considering it is mean to be a permanent transition.
Can Everyone Qualify?
Even if the company does offer these as an included benefit of the coverage you do still have to qualify. Preexisting conditions are poor health can disqualify you from the available riders. Table ratings (price ratings below standard) can disqualify you. Most companies will stop offering these riders to insured clients somewhere between table 1 and table 4 ratings. When your policy is delivered to you, you will be able to see if the policy was written without the additional riders.
This Sounds Like Disability Coverage.
Although these offerings may sound like disability coverage they are not. This is an opportunity to accelerate your existing life insurance coverage. This is not additional coverage. For example, if you have a $500,000 policy and accelerate $250,000 of coverage, you will only have $250,000 of coverage available. It is also common for companies to prorate the amount of coverage you accelerate. Meaning, if you accelerate $250,0000 of coverage, they may discount the amount of your pay out based on the expected amount of time it would take for you to pass away. This can vary from company to company. It’s important to review the process with the company before you start accelerating your benefits.
It is worth stating as well, this is no promise to pay for certain services. If you accelerate a portion of your coverage, you are responsible for how it is spent and the company will not involve themselves in reimbursing individual costs.
One of the things we love about life insurance is that the death benefit is generally tax-free if the premium is paid with post tax money. This is generally true of living benefits as well. You simply have to obey IRS regulations. This often means monthly payments for certain riders. You should navigate this with your CPA and the insurance company. Most riders are designed in a way that the method of payout will conform to IRS regulations. Again, verify these details with your tax professional.
Some policies include these kinds of riders for free. Some companies charge for them. It’s always worth asking your insurance advisor what options are available to you. Compare the details of your company’s living benefits with the rest of the industry when making a decision. Any independent life insurance advisor worth their salt will be able to tell you which companies have the most competitive living benefits. Although they souldn’t be wildly more expensive, you probably will pay a small premium for competitive living benefits.