A Life Insurance Policy acts as a significant financial protector for your family. It is an agreement between you and your insurance company whereby the insurer agrees to pay a certain amount (sum assured) to one or more designated beneficiaries upon your demise. It is provided in exchange for premiums you paid during your lifetime.
The two main types of life insurance are Term and Whole Life Insurance.
- A whole life insurance plan offers financial security and protection for your lifetime. In contrast, a term life insurance policy is designed to provide a death benefit if the policyholder dies within the policy term.
- Living benefits are associated with both these policies. However, unlike a whole life policy, a term plan is designed to provide a death benefit; thus, certain optional riders or add-ons are to be added to get living benefits.
Living Benefits or Accelerated Benefits of a Life Insurance Policy
A living benefit is the advantage or feature of the policy that supports you while you are alive. These are also often referred to as Accelerated Benefits. They are typically only available to people with terminal diseases, chronic diseases, medical conditions that render them medically incapacitated, or who are permanent nursing home residents. It differs for Term and Whole Life insurance, as explained in the following sections.
Term Life Insurance Accelerated or Living Benefits
The fact that you only pay for the death benefit makes term life insurance less expensive than permanent insurance like whole life insurance. Term insurance accelerated or living benefits are available only if you add riders to your primary plan. The following are a few typical kinds of living benefit riders for term life insurance:
- Terminal Illness Rider: This rider, sometimes known as expedited death benefits, may help pay if a terminal diagnosis reduces your expected life span to two years or less, depending on the policy. In addition to helping with end-of-life care and associated costs, this rider’s benefit can be used for other purposes.
- Critical Illness Rider: This can offer financial assistance for the treatment of certain qualifying illnesses, such as heart attack or stroke, that aren’t always declared terminal but have significant medical expenditures and a decreased life expectancy. The amount is subtracted from the benefit paid out after your death, much like with a terminal illness rider.
- Chronic Illness Rider: Similar to a critical illness rider, this one kicks in if you receive a diagnosis of a chronic condition that limits your ability to perform two or more of the six identified activities of daily living.
- Return of Premium Rider: This type of rider reimburses the premiums you pay for the policy if you survive the term, in which case the death benefit is paid.
- Disability Waiver of Premium: If you become disabled, this rider enables you to cease making premium payments while maintaining the policy’s validity.
Whole Life Insurance Accelerated or Living Benefits
Whole Life Insurance offers all the benefits of term life insurance for riders. However, it stands out for one key advantage, i.e. cash value growth. Hence, even though whole insurance usually costs more than term insurance, most of the price difference can be attributed to the ability to contribute premium money to a policy’s cash account.
Some accelerated benefits of whole life insurance associated with cash value growth are:
- Surrender: Although it’s generally not advised, you can cash out your insurance. You are free to accept the cash surrender value and cancel your policy.
- Withdrawal: You can withdraw funds from your permanent life insurance policy under several circumstances. As long as the amount is less than what you paid for the coverage, the money is frequently not subject to taxes.
- Loans: With your policy’s cash value, you can borrow money. The loan amount grows over time at a fixed or variable rate specified in the contract.
- Deposit Your Premium. You can easily maintain your cash value insurance coverage by using the funds in your cash account to cover all or part of your payments.
Conclusion
Selecting an insurance plan with accelerated benefits enables you to care for your family after death and pay their everyday expenses to live as comfortably as possible. A living benefit’s cost can change depending on the insurance provider and the policy terms. Understanding the coverage provided by your plan is critical to ensure you are financially protected and aware of potential out-of-pocket costs.
