Life Insurance With Living Benefits

Best Life Insurance With Living Benefits

The carriers below all include strong living benefit riders on their term and permanent life insurance policies. Each is A.M. Best A or higher. The depth of the living benefits varies materially by carrier, so we have noted what each one is best for.

Are You Prepared for an Unexpected Illness?

According to the American Cancer Society, there will be an estimated 1.7 million new cancer cases diagnosed and more than half a million cancer deaths in the U.S. this year.

The American Heart Association reports that cardiovascular disease is the leading cause of death globally, accounting for more than 17.3 million deaths per year. By 2030, that number is expected to exceed 23.6 million.

Furthermore, the Administration for Community Living says the average cost for long-term care in the U.S. exceeds $6,000 per month for a semi-private room in a nursing home and $3,000 per month for care in an assisted living facility.

Many people simply are not prepared for a chronic, critical, or terminal illness. They think that just because they have a health insurance or disability plan, they’ll be sufficiently covered in case of a sudden or serious health problem, such as a heart attack, stroke, or cancer diagnosis. The fact is that’s probably not true.

A great health insurance plan might cover a large part of the medical costs associated with such an illness, but there could be deductibles, copayments, and out-of-pocket expenses to deal with first. Plus, a health insurance plan won’t help you with lost income while you’re sick or recovering from your illness. A disability plan might help your financial situation while you’re away from work, but even the best of those can cover only about half of your lost wages.

Regardless of how old you are, how much money you make, or what kind of health coverage you have, two things are inevitable in the case of an unexpected illness: Your expenses will go up, and your income will go down, resulting in debt that could leave you paralyzed financially.

According to a study by Harvard researchers, over 60% of all personal bankruptcies in the U.S. are a direct result of medical problems. What’s even worse is that nearly 80% of the people included in this study who were suffering from a critical condition had health insurance at the start of their illness. This clearly demonstrates that additional protection is needed, more than what many of the health and/or disability plans are able to provide.

That’s where life insurance with living benefits, also known as an accelerated death benefit rider, can help you when you need it most.

Dealing With a Critical, Chronic, or Terminal Illness

Let’s say you develop a chronic illness that’s going to require a long-term approach to getting better. Or, you have a heart attack or a stroke, or you find out you have cancer. In each of these cases, there’s a good chance that you could recover and continue to live a full and meaningful life, if you’re able to afford the cost of proper treatment and care.

Unfortunately, your health insurance coverage will likely offer only a partial solution. Wouldn’t it be helpful if you could access your death benefit to help pay for costs related to your care, rather than digging into your savings account?

According to a USA Today report, one in four cancer patients or their families said they spent all or most of their savings to pay for treatment. And, one in eight people with advanced cancer turned down recommended care because of the costs involved.

“Growing numbers of people simply can’t afford to get the care we know they need,” said John Seffrin, CEO of the American Cancer Society. “We hear about a growing number of people turning down treatment.”

Some insurance companies will accelerate most of your death benefit if you qualify as terminally ill, but that seems like more of a death benefit for a death sentence. With living benefits life insurance, you can be covered in three separate areas:

• Critical illness. Typically pays one lump sum if you have a serious illness such as cancer, or a heart attack or stroke.
• Chronic illness. Typically pays a monthly benefit if you’ve been diagnosed as chronically ill and you are unable to perform two activities of daily living, such as bathing, dressing, or eating. This benefit could pay up to a quarter of the amount of your death benefit annually.
• Terminal illness. Typically pays a benefit if you are diagnosed with a terminal illness and are told that your life expectancy is 12 to 24 months. These funds can be used for experimental medicine, preparing for final expenses, or any other purpose you deem necessary.

What Happens When You Have Life Insurance With Living Benefits?

If you were to experience a qualifying critical, chronic, or terminal illness, such as a heart attack, a stroke, or cancer, to name a few, you would have the option to collect part of your death benefit to help pay for expenses associated with your illness.

Of course, the amount of money your beneficiary would receive as part of your death benefit would be reduced by that amount. But, having the option to accelerate your death benefit funds could be a critically important step in helping you and your family through an unexpected health crisis. It might even be the saving grace that helps you enjoy a long and healthy life after your illness.

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Frequently Asked Questions

What are living benefits on a life insurance policy?

Living benefits, also called accelerated benefit riders (ABRs), let you access a portion of the death benefit while you are still alive if you are diagnosed with a chronic, critical, or terminal illness. The accelerated payment is deducted dollar-for-dollar from the remaining death benefit. Most A-rated carriers now include living benefit riders at no extra cost as a standard feature.

What is the difference between chronic, critical, and terminal illness riders?

Terminal illness rider: triggered by a diagnosis with 12 to 24 months life expectancy. Critical illness rider: triggered by a specific diagnosis (cancer, heart attack, stroke, major organ transplant, ALS, end-stage renal failure). Chronic illness rider: triggered by inability to perform 2 of 6 activities of daily living (ADLs) for 90 days, or severe cognitive impairment. Carriers differ on which riders they include and the trigger language. Always read the rider definitions before buying.

Are living benefits taxable?

Generally no. Under IRC Section 101(g), accelerated death benefit payments due to terminal illness (life expectancy under 2 years) or chronic illness (qualifying ADL/cognitive impairment) are income-tax-free up to the IRS per-diem limit. Critical illness acceleration is sometimes taxable depending on the policy structure. According to the American Council of Life Insurers, the tax-free treatment of living benefits was established by HIPAA in 1996.

Do living benefits cost extra?

Most A-rated carriers now include the standard set of living benefit riders (terminal, critical, chronic) at no extra premium as a built-in feature. This was not always the case before 2010. A few high-end living benefit riders (chronic illness lump-sum acceleration with no discount, long-term-care equivalence riders) still carry an explicit premium, typically 5 to 15 percent on top of the base premium.

How much of the death benefit can I accelerate?

Acceleration limits vary by rider and carrier. Typical limits: terminal illness 50 percent to 100 percent of death benefit (some carriers allow full acceleration); critical illness 25 percent to 50 percent capped at $250,000 to $500,000; chronic illness 2 percent per month for up to 25 months. National Life Group and Corebridge offer the highest acceleration percentages in the market.

What is the discount applied to living benefit payouts?

Most chronic and critical illness riders use a "discounted death benefit" formula. If you accelerate $100,000 of death benefit, the actual payout might be $70,000 to $90,000 depending on the actuarial discount the carrier applies based on your remaining life expectancy and the interest rate. Terminal illness acceleration typically applies a smaller discount because the life expectancy is shorter. A few carriers offer no-discount acceleration on terminal illness, which is the most consumer-friendly structure.

Does living benefit acceleration count as long-term care insurance?

It is a partial substitute, not a full replacement. Chronic illness ABRs share the ADL-trigger structure with long-term-care insurance, but they have lower maximum benefits and a more rigid payout structure. They are best used as a hybrid solution for buyers who want a life insurance death benefit primarily, with a smaller pool of long-term-care-style funding as a secondary benefit. For buyers whose primary need is long-term care, a dedicated long-term-care insurance policy or a hybrid LTC/life policy is more appropriate.

Can I get living benefits on a no-medical-exam policy?

Yes. Most no-exam term policies from Mutual of Omaha, Foresters, and Corebridge include living benefit riders as standard. Ethos and Fabric instant-issue term include terminal illness ABRs but limited critical/chronic illness coverage. National Life Group requires agent-assisted underwriting for its full set of living benefits but offers the deepest coverage in the market.

What happens to my policy after I accelerate a living benefit?

After acceleration, the death benefit is reduced by the amount accelerated. Premiums typically continue at the same level but on a reduced face amount, or in some cases premiums are waived after a chronic illness acceleration. If you accelerate the full death benefit on terminal illness, the policy terminates. Always confirm the post-acceleration premium structure with the carrier before exercising the rider.

Do all carriers offer living benefit riders?

Most A-rated carriers now include at least terminal illness acceleration as a standard rider. The depth varies materially. National Life Group, Mutual of Omaha, Foresters, Penn Mutual, Corebridge, MassMutual, Guardian, and Symetra all include chronic and critical illness riders on most of their term and permanent policies. A few older carriers (Northwestern Mutual, New York Life on certain products) offer only terminal illness as standard, with critical/chronic available as a paid rider.

Are living benefits available on whole life and IUL policies?

Yes. Living benefit riders are common across all permanent product types: whole life, universal life, indexed universal life (IUL), and variable universal life. The chronic illness rider is especially valuable on permanent policies because the longer policy duration increases the likelihood of needing to accelerate. National Life Group and Penn Mutual both include living benefits on their IUL products at no extra cost.

What is the best life insurance with living benefits?

The best living benefits carrier depends on your goal. For the deepest combined chronic, critical, and terminal illness coverage: National Life Group LiveWell. For a mainstream carrier with strong combined coverage: Mutual of Omaha. For ADL-triggered chronic illness acceleration (long-term-care substitute): Corebridge Quality of Life Insurance. For permanent policy with chronic illness rider plus dividend-paying whole life: Penn Mutual or MassMutual. For fraternal benefits plus living benefits: Foresters.