WHAT ARE LIVING BENEFITS?
If you think of your life insurance or mortgage protection as a door that can’t be unlocked until you die, then living benefits are the keys that provide you with the money you need while you are alive.
When we think about life insurance, we really think of it as something that we’re buying so that our loved ones will be taken care of after we die.
Have you known someone who died without life insurance or mortgage protection? If so, you may know how financially devastating it can be to the family left behind. In addition to covering the cost of their mortgage and other expenses of daily living, they will also need to pay for burial costs. The family may even have medical bills to pay off.
As it turns out, dying is pretty expensive.
Living is expensive too, though!
If you’re like many people, a life-changing illness or other unexpected expense is all that stands between you and financial ruin. Few people have the means to easily handle the financial hardships that come with a terminal or critical illness – or even an ongoing condition that leaves you with long-term care needs
To make matters worse, the sicker you are, the less likely you are to continue to generate a paycheck. As your expenses increase and your income decreases, you inevitably begin to accumulate debt.
Enter Living Benefits
Living benefits are additional insurance coverage (aka riders) you can add to your life insurance or mortgage protection policy.
Living benefits give you access to some or all of your insurance policy money (your death benefits) while you’re living.
In most states, the way you use this money is up to you. You can use it to pay for medical care and treatment, or the money can even be used to stay on top of your normal bills while you’re out of work.
The Top 3 Living Benefits
While there are a variety of living benefit options you can get, here are the top three.
Living Benefit #1: Terminal Illness Insurance
In most states, you are eligible for terminal illness living benefits (aka accelerated death benefits) when your doctor diagnoses you with a terminal illness, and your illness is likely to result in your death within 24 months (depends on the state).
At that time, you have a few different options as to how you will receive the money. Depending on what you need, you can decide to get 100% of your insurance policy money (your death benefits) all at once and use it however you choose. Whether you need to take care of medical expenses or you just really want to take one last Caribbean cruise with your family, you’ll have the ability to spend the money however you need or want.
Receiving all of your insurance policy money at once may also be a good option for those who can’t work, as it can make up for lost income, allowing your family to avoid financial hardship while you are sick.
Keep in mind, taking 100% of your insurance money out will most likely end up cancelling your original policy*, and you will need to get a new policy if you still want life insurance or mortgage protection to keep your family financially protected after you die. If you decide to get a new life insurance or mortgage protection policy afterwards, your monthly payments (monthly premiums) will probably be much higher due to your compromised health, or you may even be listed as uninsurable.
Alternately, you may also choose to take out some of your life insurance or mortgage protection money and leave the rest of it alone. If you have few expenses, a sufficient savings account to draw from or other means of income, you may decide that this is the best option for you. This way you can get the money you need yet keep your insurance so your loved ones (beneficiaries) will still receive your insurance money after you die.
Living Benefit #2: Chronic Illness Insurance
To receive chronic illness living benefits (similar to – but not the same as – long-term care insurance), your doctor must have certified, within the last 12 months, that you can’t perform at least two Activities of Daily Living (ADLs) on your own for at least three months in a row or that you are cognitively impaired for at least 90 days. Activities of Daily Living include eating, bathing, dressing, using the restroom, grooming and moving around.
Also, in order to receive your chronic illness living benefits, you may need to have your policy at least two years before you use it, and your doctor may need to note that your ADL needs will be permanent and last the rest of your life. This varies from carrier to carrier though, so make sure to check with your insurance agent.
While some people want to live with a family member and have that family member help with all of their activities of daily living, others might need help from a professional caregiver. Sometimes this professional help will be in a nursing home, assisted living facility or can even be in their own home.
Any sort of professional help will be expensive though which is where a chronic illness living benefit comes in.
Keep in mind, Medicare will not pay for this type of care.
Although the insurance money that you get can be used to pay for your care, you can usually use it however you need to. So you can pay it directly to the medical facility or in-home caregiver. Or you can use the money to cover your daily living expenses or make up for lost income.
If you qualify, you will have a waiting period before you can use your chronic illness living benefits. After that, you can have money taken from your death benefit every year to cover your expenses. Of course, you also have the option of simply leaving the money alone for your beneficiary if you decide not to use your chronic illness living benefits.
Living Benefit #3: Critical Illness or Injury Insurance
If you are facing a critical illness or injury, then you’ve probably found that it’s hard (if not impossible) to pay your medical bills and other expenses.
Doctors’ visits, hospital stays and medications cost more money than many people think, and earning a paycheck may be difficult or impossible when you’re very sick.
If you choose to use your critical illness living benefits during this time, you can receive up to 100% of your of insurance policy money (your death benefits).
But you do need to qualify. Most insurance companies require you to be diagnosed with at least one out of 13 critical illness. A few of the more common critical illnesses that will qualify you to receive your critical illness living benefits are: heart attacks, strokes and cancer.
If you qualify, you have a few different options for how you handle your insurance money. Depending on how serious your illness or injury, you may get a percentage of the full amount of your policy. You’ll receive your money all at once, and in most states, you can use it however you need to. You can also take out a little bit of the policy amount and leave the rest of it for your beneficiary. As always, you can simply leave the money alone, and your beneficiary will get the full amount of the policy when you die.
Usually, you have access to your critical illness living benefits, you must have your policy for at least 30 days before you can use it. And most likely, while there’s not an annual limit for how much money you can access, there is a lifetime limit for the amount of benefits you can receive.
Facts to Keep in Mind
- Some of the these living benefit riders add an additional cost to your monthly premium payments while others may be included at no charge.
- Living benefits are usually tax free.
- Most living benefits can only be purchased when you buy your policy, so don’t wait and think you can add them later.
- Your death benefit (the money your beneficiaries get from your life insurance or mortgage protection policy when you die) will most likely go down when you use your living benefits, but in many cases, you get to keep a portion of your original life insurance or mortgage protection policy.
Preparing for the unexpected is something that we all know that we’re supposed to do. While many of us intend to save money so that we won’t have to worry when we get sick, everyday expenses can make it difficult to set aside what we need. And thanks to the high costs of medical care, our savings can be used up very quickly.
Adding a living benefits to your life insurance or mortgage policy is simple (when you first purchase the policy), not to mention cost-effective and sometimes free, way to ensure that you don’t have to worry about money when you get sick. If you have a living benefits rider, you don’t have to use it. However, it does make the money available if you should need it.
Here are a few Living Benefit true stories.
The Johnstons’ Living Benefits Story
Joven and Benita