Most of us think of life insurance as something that only pays off once you die.
Once upon a time, that’s all life insurance did – the basics. However, today’s life insurance policies can be simple (if that’s what you’re looking for), or feature-packed and customized to your needs. Life insurance policies now can even pay living benefits. Yes, that means what you think it means: A policy can pay benefits even if you are still alive.
Term life insurance living benefits
Usually, a term life policy is among the most basic of policies, providing a fixed death benefit. It can provide coverage for a limited time at a guaranteed rate. But many companies are now offering a rider (that is, an add-on feature) that can provide living benefits with your term policy.
Living benefits can allow you to access the value of your policy under certain conditions:
- Critical illness
- Chronic illness
- Terminal illness
Terminal illness is a commonly offered living benefit as an accelerated death benefit. Any amount withdrawn from the policy would be deducted from the policy’s face value. For example, if your term policy provides coverage for $250,000 but $100,000 is paid as an accelerated death benefit, your policy would still provide $150,000 as a death benefit to your beneficiaries.
Living benefits may also provide access to money from your policy in the case of chronic illness or critical illness.
Chronic illness can be a little confusing. Insurers usually look at the six activities of daily living (ADL): eating, bathing, transferring (walking), dressing, toileting, and continence. If your chronic illness prevents you from performing these activities, you may be eligible to receive a portion of your death benefit in advance.
Critical illness such as a heart attack, stroke, cancer, and some other illnesses may also make you eligible for an advance payment of your death benefit.
Not all term policies offer living benefits for chronic illness or critical illness, but an increasing number are offering this option as a rider, and a handful are offering this expanded coverage as a built-in benefit of the policy.
As always, speak with me or your financial professional about what living benefit policy options may be right for you and your family.