An accelerated death benefit is one of the perks of having GREAT life insurance coverage.
What’s that you ask?
You may be entitled to living benefits if you’re diagnosed with a terminal illness!
Furthermore, you may also be allowed to pull out cash while living with a chronic illness!
YEP. You heard me right.
Accelerated death benefit is a common addition to many life insurance policies.
You should make sure that these benefits are specifically included in your life insurance policy! If they aren’t you may be able to incorporate them as a rider after the fact because, without a doubt they provide a fantastic safety net.
Why Would You Need an Accelerated Death Benefit?
Most people believe that Term life insurance only pays out when you die.
That’s all well and good, but what if you develop a serious and lengthy illness that precedes your death? It could really throw you for a loop.
I know – nobody wants to dwell on what would happen if you get terminal cancer, ALS or some other disease…
…but it happens.
Many life insurance companies offer an accelerated death benefit to cover you in the event that you find yourself chronically or terminally ill! This is undeniably a great deal.
How Do I Claim Accelerated Death Benefits?
So how do I claim this money?
The insurance company will charge you an nominal administrative fee to disburse the funds.
That sounds great but “how much money will I get?” Well that depends. The monetary figure will be determined by the policy and those numbers vary.
Most policies that provide accelerated death benefit for chronic illness, pay out 2% of the death benefit per month.
For example, a $100,000 policy will pay out $2K per month. A $25 K policy pays out up to $5K per month.
The key features are:
- The policy pays out it REDUCES the death benefit by the amount receive
- It pays out when you can’t do 2 of the 6 activities of daily living (ADL) like bathing, feeding yourself, going to the bathroom, moving around
- The benefit gets paid as cash to the owner, which eliminated the need for receipts from a medical facility.
In other words, you can pay your child, grandchild or whomever to assist with you with home care, even if they’re not licensed. It’s really cool. All you have to do is qualify for 2 of the 6 ADLs and you get the money.
Once you receive the money you may spend it as you see fit. Typically the cash is used to cover medical expenses, but some opt to take a trip around the world! It’s entirely up to you!
A terminally ill policyholder may on the other hand decide to leave the death benefit in place for their beneficiary. Remember, any money taken through accelerated death benefit will be deducted from your final death benefits.
Is an Accelerated Death Benefit Included in My Policy for Terminal Illness?
The Terminal Illness accelerated death benefit is typically incorporated in permanent and term policies. If your policy doesn’t feature this benefit, you can usually add it as a separate rider.
An Accelerated death benefit unquestionably adds a new level of protection to your life insurance policy. I would highly suggest contacting your independent agent today to find out what is available for your particular circumstances.
Chronic or Critical Illness Accelerated Death Benefit
In addition to Terminal Illness, some life insurance companies allow you to to take an accelerated death benefit for chronic or critical illness.
This coverage comes in a variety of different packages and payment options that vary from company to company. You should also know that even if you don’t have this option in your current policy, you may still be eligible to add it!
Depending on the specific policy or rider purchased, you may receive a percentage of the death benefits should you meet the requirements laid out by the life insurance company.
Monies are paid out either monthly or in a lump sum. Generally, the percentage available varies from 25% – 95% of the total death benefit.
Some states and life insurance companies have specific limitations on the percentage allowed. Discuss these details with an independent life insurance agent.
Also be aware that any money left on your accelerated death benefit option after your death, will be given to your beneficiary.
Although not all lists of critical illness and conditions issued by insurers are identical, common inclusions are cancers, kidney failure, permanent total disability and terminal illness. Depending upon medical history some individuals may not be covered for certain conditions, but the insurance company will alert those individuals to that fact before they take out their policy. Prepare for the Unthinkable: The Benefits of Critical Illness Insurance
Do I Qualify for Accelerated Death Benefit?
Generally speaking, to qualify for these benefits, some or all of the following conditions must occur:
Diagnosed with terminal illness where you are expected to die within 2 years.
NOTE: A critical illness rider pays a lump sum amount should the insured be diagnosed with a certain condition. Typical conditions covered under the critical illness rider are heart attack, stroke, cancer, organ transplant, brain tumor, coma, coronary bypass surgery, blindness etc. The amount paid can be a percentage of the death benefit or a flat amount depending on the carrier/product.
The illness is so drastic you will require an extraordinary form of medical treatment such as an organ transplant.
Permanently placed in a long term care facility or hospice.
Require daily care to such an extent that you can’t care for yourself, such as bathing or using the toilet.
NOTE: Chronic Illness is defined as losing the ability to do 2 activities of daily living such as, eating, bathing, dressing, toileting, continence and transferring or has sustained severe cognitive impairment.
How Much Do Accelerated Death Benefits Cost?
It depends on the policy and on the company.
For instance, some policies build this coverage into the cost of their policies. Otherwise, you have to either pay a set fee or percentage of the total death benefit to purchase the an accelerated death benefit rider.
After you meet the policy’s eligibility requirements, there will be a period of exclusion before you can access the funds.
Also, there is usually an administrative fee which is somewhere in the neighborhood of $250-$500 for most companies.
Is Accelerated Death Benefit Taxable?
Generally speaking, accelerated death benefit funds aren’t taxable and are treated the same as death benefits.
However, the tax code is also quite specific about those who qualify. For an accelerated death benefit to be tax exempt, a person has to be either terminally ill with death expected to occur within 24 months, or certified annually as chronically ill by a physician.
Here’s the scoop. Generally, for federal income tax purposes, life insurance proceeds due to the death of the insured are not taxable and don’t even have to be reported on a federal income tax return. Taxes from A – Z (2013): L is for Life Insurance
....A Few Other Points to Consider
An accelerated death benefit should not be used in place of other long term care coverage. It’s a last resort to financially supplement unanticipated expenses.
You should also be aware that in some situations, the money may or may not be considered by Medicaid to be income.
So, what happens if you recover from your illness?
If you’ve been approved by the insurance company, you won’t have to repay the money. The drawback is your death benefits will be reduced by the amount paid out.
If you would like to learn more about accelerated death benefits, please give us a call – we will happily explain how it works!
The Life Insurance Industry is Now Offering "Long-Term-Care-Like Benefits"
The life insurance industry is making great strides to provide more comprehensive benefits to policy owners. The Accelerated Death Benefit we’ve been discussing is often compared to long term care insurance.
I need to be careful here, because all the carriers warn that an accelerated death benefit is not to be confused with “Long Term Care Insurance”, and shouldn’t be presented that way.
So I am merely making it known that these additional benefits are available through some policies, and you can judge for yourself.
Carriers That Offer Living Benefits as Part of Their TERM Policies
Trans LB - Terminal, Chronic & Critical Riders
American National: Terminal, Chronic & Critical Riders
AGLA - Terminal, Chronic & Critical Riders
Assurity - Terminal, Chronic & Critical Riders
Sagicor - Terminal & Chronic Riders
Prudential - Terminal & Nursing Home Riders
Carriers That Offer Chronic Illness or LTC Riders on PERMANENT PRODUCTS
(Flex II Products Only)
United of Omaha
National Life Group
(LTC Rider & Linked Benefit Product)
(Linked Benefit Product)
North American Company’s Chronic Illness Accelerated Benefit Rider - A Star!
As the list above illustrates, many carriers offer some form of accelerated death benefit or ‘long term care’ funds.
One that stands out in the crowd for those in good health, is the Chronic Illness Accelerated Benefit rider, offered by the North American Company.
If you become critically ill, this rider advances up to 24% of the death benefit while the insured is still living.
Critical illness is defined as the permanent loss of ability to perform at least two activities of daily living (ADL’s), such as bathing oneself, feeding oneself, dressing, etc. You also qualify if you have severe cognitive impairment.
The money is simply accelerated from the death benefit proceeds. No additional money is paid, which is why it’s not the same as long term care insurance.
Example of a North America Company's Chronic Illness Accelerated Benefit Rider in Action
A male client purchased a $500,000 North American policy with a chronic illness accelerated death benefit rider a couple of years ago
He's developed Alzheimer’s, and can no longer bathe himself
There are lot of expenses he will incur connected to his disease. Perhaps his wife needs to employ a caregiver.
In this this case, the policy owner will file a claim to accelerate a percentage of the death benefit. This figure is typically between 5% – 24% of the value of the policy. “The insured becomes eligible through written certification by a physician within the past 12 months. There is a 90-day elimination period“.
If this gentleman files a claim for 10% of the value of his death benefit, he will receive a little less than $50,000. The policy’s death benefit will then be reduced by $50,000 leaving a $450,000 death benefit for his beneficiaries. You will need ask your independent life insurance for an illustration to give you an accurate real-life example.
What I like about North American’s rider is that you don’t have to be confined to a nursing home to exercise it (in most states that is). There is a lot more freedom in how you can disperse the funds as well. The cash can be used for in-home care, or to supplement your household even if you provide your own care.
This rider is available on all permanent products up to age 75 at policy issue. A couple of states, California and Kentucky, don’t allow the chronic illness rider and in Minnesota, you must be confined to a nursing home to file a claim.
North America Company's Accelerated Death Benefit for Terminal Illness
The other component of the rider is that it pays out up to 75% of the death benefit, while the insured is living, if he or she is diagnosed with a terminal illness. Please be aware there is a cap on this. The maximum payout is $250K!
You must be diagnosed by a physician as having 2 years or less to live to be considered terminally ill.
Just about every company has a Terminal Illness Rider or Accelerated Death Benefit Rider, whatever you want to call it… but very few of these cover anything more than terminal illness.
Even if they do cover some sort of long term care needs, it may only be used if you’re confined to a nursing home.
The good news is, North American Company allows you to use the funds for in-home care. My clients are always excited to hear that this feature is INCLUDED in the policy at no extra charge!!
If you’ve ever priced long term care policies, you will agree that this is a great perk!
Prudential’s Living Needs Benefit Rider
Another life insurance company that provides some good protection for living needs is Prudential. This post is getting a bit long, so I’ll just give you a couple quick bullet points about Prudential’s Living Needs Benefit rider.
It can be added to ANY of their policies, including term.
There is no additional cost!
Policy owner be confined to a nursing home for 6 months, with the expectation that they will never return to their home. Monies can’t be used for in-home care.
100% of the contract can be accelerated. Like North American, an actuarial reduction is applied, but the policy owner can still expect to receive 90-95% of the death benefit in most cases.
How Does Accelerated Death Benefit Differ From Long Term Care Insurance?
I just want to reiterate that the biggest difference between a chronic illness/accelerated death benefit rider and long term care insurance is that no new monies are created or paid out with the accelerated death benefit.
You just get money that’s coming to you as part of your life insurance. No additional coverage is provided.
If you have Long Term Care insurance it might pay you out for years if you qualify, leaving your Death Benefits in tact for your beneficiaries upon your passing. In a nutshell, Long Term Care Insurance provides more strategic and comprehensive coverage should you become sick.
You should make sure you know all the ins and outs of your coverage as some long term care policies have maximum payouts. It’s very important for you to go through these details with an independent life insurance agent to be sure you are getting the protection you envisage.
Long-term care insurance is intended to reduce out-of-pocket costs if someone winds up needing long-term care from a paid provider. Long-term care insurance can pay for a nursing facility or home care, and many policies also cover assisted living, though no policy will pay the full cost of any of these. People usually pay premiums for 20 or 30 years before reaching an age when long-term care is likely. What is Long Term Care Insurance? Stephanie Miles
Long Term Care Too Expensive? Try Adding a LTC Rider to Your Life Insurance Policy!
I am often asked about Long Term Care coverage, and if it can be added to a life insurance policy I am quoting. Most clients have already researched Long Term Care Insurance, and find it to be cost-prohibitive.
As my training aptly put it – “Who should get Long Term Care coverage?” and the shocking answer is – “those that can AFFORD IT!”.
So it appears there is finally an affordable way to help pay for some Long Term Care expenses.
It’s not gimmick, Long Term Care is affordable and sometimes added for free to life insurance policies! Let’s check it out!
Living Benefits Through Trendsetter LB
If you’re in your 30s, 40s or 50s, chances are you’re still looking at term coverage, as permanent plans are costly…
…that being said, that doesn’t keep you from accessing a wonderful life insurance plan with Living Benefits! One such product is Trendsetter LB (LB stands for Living Benefits) which is only about 30% more expensive than a regular term policy.
This additional premium adds wide-ranging living benefits. If you become chronically, critically, severely or terminally ill or severely cognitively impaired during your lifetime, your benefits become available for use in:
- nursing care facility
- adult day care facility, or
- your home
Bottom Line...The Cost is More Affordable Than You Would Think!
For example, a 57 year old woman, rated at Preferred Best looking to purchase $100,000 in coverage for a 20 year term pays $421 per year for a traditional term policy without living benefits.
However, the Transamerica Trendsetter LB policy will cost $542 per year and offers full access to death benefits in her lifetime in addition to $100,000 in traditional coverage!
The following critical conditions are covered:
Severe Cognitive Illnesses Such as Alzheimer's
Terminal Disease Such as Kidney Failure, Major Organ Transplant that cause her to need assistance to bathe and dress herself
She can access up to 2% of the death benefit each month until she uses up the allowable portion.
- For Chronic illness, the maximum she can access is 90% of her total, and
- For Critical illness she can access 100% of her death benefit amount
Even after she uses the entire benefit, she still has $10,000 remaining to cover final expenses upon her death. Of course, if the benefits aren’t needed during her lifetime, they will simply be available to her beneficiary after she dies.
There is a one-time administrative fee assessed when the living benefits commence, as well as a 2-year exclusion period at the beginning of the policy.
A waiting period is also to be expected once the condition is diagnosed. The length of the period is determined by state.
This product offers the broadest range of living benefits available and is easily accessible whether care is needed in a facility or at home.
Long Term Care Insurance for the Elderly - Guaranteed Universal Life
If you are in your 60’s or 70’s, you’re probably looking at permanent life insurance.
Coverage that will last the rest of your life, no matter how long you live – right?
Well, you’re in luck, because a number of companies offer a Guaranteed Universal Life policy, with a no-lapse guarantee and Long Term Care Benefits!
The policy will cost about 15-25% more with an added Long Term Care Rider, but it sure gives you some pretty wonderful protection!
NOTE: Chronic illness and severe cognitive illness are often covered after a 90 day elimination period.
Benefits vary from insurance company to insurance company, but the following may be included:
Maintenance or Personal Care in Non Acute Care Facility - Such as a Long Term Care Facility, Adult Care Facility or in Home Care.
Cashing Out Your Policy Early
In some instances, an insurance policy owner may need access to their policy funds for a personal emergency.
A few carriers that offer Accelerated Death Benefits, Living Needs Benefits or Long Term Care benefits provide another option, which allows the owner to surrender the policy at certain time for a refund of premiums paid.
This is called a Premium Refund Option or Multiflex Surrender Rider. It is a variation on the Return of Premium (ROP) option available on most Term Policies.
In this scenario, the owner purchases a rider, that allows them the freedom upon certain anniversaries, to surrender the policy. They then receive 100% of the premiums paid up to that point.
The following carriers offer this option:
- United of Omaha
- American General
How To Find Coverage With These Benefits
If you need more information about accelerated death benefit, long term care riders or living benefits, we suggest speaking with an independent agent like those at Huntley Wealth.
We have access to dozens of insurance companies and know which insurers have the best policies when it comes to living benefits as they apply to your particular health circumstances.
If you have specialized life insurance needs, we can give you valuable advice and help you to find a policy that suits your unique profile.
Call us today at 877 – 443 – 9467 if you think you need life insurance. We can help!
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