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Life insurance has lots of options. Once you decide the kind of policy you want, you can explore what riders, or additional coverage, you want to add to your policy. With some policies living benefits are automatically included; with others you have to add them with riders. Here are answers to five questions about living benefits: What are living benefits of life insurance? What type of life insurance policies have living benefits? What are the pros and cons of living benefits? What should you consider when adding living benefits to a life insurance policy? What should you consider when deciding to use living benefits? What are living benefits of life insurance? Living benefits are funds that can be accessed while living. Living benefits include the cash value of a policy, accelerated death benefit riders, and even premium waivers. Cash value is only available with permanent life insurance policies. Depending on the terms of your policy, you can borrow against the cash value or use it for living expenses during retirement. Accelerated death benefit riders allow policyholders to access part of the death benefit early in the event of a terminal illness, critical illness, or chronic illness. Be sure to understand the terms of the rider and how it works before adding it. Brian Greenberg, True Blue Life Insurance Founder and CEO“Part of the definition of accelerated death benefits, or ADB, is the terminal illness rider. The terminal illness ADB is a feature that is required by law in almost every state in the U.S. and is considered separate from other accelerated benefits. It is interesting why the terminal illness rider is required by law: People with terminal diagnoses were selling their life insurance policies for pennies on the dollar in what is called a viatical settlement. The practice of buying policies from terminal patients became predatory, and most state insurance departments began requiring it by law.” Long-term care benefits can also be added. These benefits help pay the cost of long-term care in a facility. This rider can be more cost-effective than purchasing a separate long-term care insurance policy. A disability premium waiver is a nice benefit to add because it allows you to keep your life insurance coverage without having to pay premiums. Adding riders and other benefits can make premium rates increase. However, the additional coverage may make it worthwhile for some life insurance shoppers. Sam Price, Assurance Financial Solutions Independent Agent"An accelerated death benefit is a living benefit in nearly every life insurance policy now. In most cases, you don't even have to pay extra for that benefit. But only some companies make more living benefits available such as protection for cancer, heart disease, stroke, transplants, and even long-term care benefits to name a few." As these living benefits have become more common, the rates have also lowered. Jeff Root, Rootfin Insurance Blog Owner“Over the last two years, life insurance policies with living benefits rates have come down substantially as more carriers enter the field. If you're comparing rates for term life insurance, it can be only 10–20 percent more expensive (depending on the company) to buy a policy that has living benefits — meaning you can access the death benefit in case of a critical illness like cancer, heart attack or stroke. That's so much more peace of mind for very little additional cost.” What types of life insurance policy has living benefits? While some living benefits, like cash value, are only available with permanent policies. It’s possible to find term life policies with accelerated death benefit riders and disability premium waivers. John Holloway, NoExam.com“All types of policies can have living benefit riders added. In regard to term life insurance, it is usually in the form of riders that can be added on for a small increase in premium. Permanent life insurance offers cash value which provides other living benefits such as tax deferred growth and access to cash later in life.” When looking at accelerated death benefit riders, be sure to understand what the definitions are for qualifying for an accelerated benefit. Laura Donovan, Sonder Financial Founder"Many companies now have riders for Terminal Illness (a diagnosis with typically 1 or 2 years life expectancy) Chronic Illness (you need help completing basic daily activities, or are maybe diagnosed with Alzheimer's or dementia) and some have riders for Critical Illness (life threatening diagnoses like cancer, heart attacks, strokes, ect.) While these are becoming more common across permanent insurance contracts, there are some companies offering these benefits on even their term insurance contracts — which is great for clients. It’s important to look at the fine print for the different triggering events that are accepted, because they do vary from company to company. If you’re purchasing term insurance that offers these illness 'living benefits' — make sure the company’s term contract is convertible." What are the pros and cons of living benefits? Pros Living benefits give you more options on how to best use your life insurance policy because they allow you to use the accrued cash value or accelerate some of the death benefit for qualified expenses. Other living benefits, like disability premium waiver and guaranteed insurability riders, allow you to keep your coverage even when unexpected health challenges arise. Experts on the pros of living benefits Brian Greenber, True Blue Life Insurance Founder and CEO“There are not many cons regarding living benefits. Insurance companies are adding these on to current products at meager, or no cost at all. The pros are that you can access your death benefit while you are alive. Living benefits are like lesser versions of a disability and long term care policy.” John Holloway, NoExam.com“The pros of living benefits is that they can provide relief at a time when you need it most. Riders can be added on to your policy to provide things like an accelerated death benefit, disability waiver of premium, or guaranteed insurability later in life.” Mike Sosso, InsuranceSmart LLC Owner and Licensed Life Insurance Agent“Structuring a policy with living benefits often increases the cost of the policy, but offers insured greater benefits and flexibility and often at a substantially lower price than purchasing two or three separate policies to cover all the same issues. As an example, a policy with a critical illness, chronic illness, or long term care accelerated death benefit rider provides the insured the option to take all or a portion of the death benefit to help with needed expenses incurred in the event of a qualifying chronic illness, critical illness, or long term care need at a fraction of the cost of purchasing each of these polices separately." Cons Monthly premiums increase the more riders you add to a life insurance policy. Be aware of the price difference and determine whether the additional coverage offered in exchange is worth it for your situation. In some situations, it is. In addition to higher premiums, any portion of the death benefit that is accelerated will not be received by your beneficiaries. Be mindful when accelerating your benefit so that your immediate needs can be met and your beneficiaries future needs can also be met. Experts on the cons of living benefits Chane Steiner, Crediful CEO“Depending on where you live, you may be subject to taxation on the benefit received. You may have to pay a fee depending on the insurance company.” Randy VanderVaate, Funeral Funds Owner and CEO“Living benefits are not disability insurance and are not a replacement for disability insurance. The living benefits are deducted from the face value of the insurance policy, reducing the insured’s death benefit. Your insurance company may also limit the amount that may be withdrawn from your policy (example: 50 percent for the critical illness, and 50 percent upon death).” Mike Sosso, InsuranceSmart LLC Owner and Licensed Life Insurance Agent“There is a downside of bundling critical illness, chronic illness, or long term care accelerated death benefit riders into one policy. When you exercise the accelerated death benefit rider, the death benefit always reduces equal to or in some cases greater than the amount of the accelerated benefit taken. This in some instances can even eliminate the death benefit entirely. The accelerated death benefit, however, can typically be taken as a partial against the total face amount to leave you a residual amount to pay out at the insured’s death.” What should you consider when deciding to add living benefits? Consider the following four factors before purchasing life insurance with living benefits: Family health history Current health Occupation risks Existing coverage Future constraints Policy terms Family health history John Holloway, NoExam.com“Something to consider would be family medical history. If both parents have passed away from the same terminal illness, then you might have a higher chance of the same. An accelerated death benefit would be nice to have if you were someday diagnosed with a terminal illness.” Current health Mark Charnet, American Prosperity Group Founder and CEO"The number one item is the proposed insured’s insurability, as the policy’s premium is based on this. In fact, an applicant may be accepted for the life insurance portion and denied an Living Benefits Rider (LBR) for long-term care (LTC), as an example. Bone cracks or other osteoporosis symptoms may deny the applicant the LBR, yet life expectancy would be unaffected by this and the offer from the underwriting team may be a standard rating or better." Occupation risks John Holloway, NoExam.com“If your occupation is somewhat dangerous, then the disability waiver of premium rider would allow you to avoid paying premiums while disabled. This is something to consider if there is any chance that you could become disabled.” Existing coverage Brian Greenberg, True Blue Life Insurance Founder and CEO“Adding living benefits to your insurance policy is worth it if you meet two requirements. One, the price difference is minimal. Two, you do not already have a disability, critical illness, or long term care policy.” Randy VanderVaate, Funeral Funds Owner and CEO“People should consider their existing life insurance benefits and disability insurance benefits before deciding if they need living benefits included in their insurance policy. As long as the rates are competitive between two different carries, it is wise to get a plan that provides living benefits.” Future constraints Jason Fisher, BestLifeRates.org, LLC“One may want to consider if having access to living benefits means they forego other coverage. For example, is a person has access to a living benefit, it may require them to "spend down" the benefit first before being able to submit a claim to certain health insurance plans.” Gordon E. Conwell, III, Americanterm.com"Knowing how each company pays out living benefits prior to purchasing makes sense, so that you’re not unpleasantly surprised later…most companies offer a discounting method of paying out the chronic and critical living benefits. I suspect many people are going to be unhappy later with this discounting method of getting living benefits if/when they make a living benefit claim someday since I suspect no one is going to get the full amount they request on a living benefit claim under this discounted method, but regardless of the amount you get, your policy will still be reduced by the original amount requested." Policy terms Virginia Hamill, FitSmallBusiness.com Senior Insurance Analyst"Some insurers offer these riders at an additional cost; others automatically include them in the policy, although you have to imagine the expense is baked into premium for those. Plus, using your living benefits rider can come with costs. Insurers often charge administrative fees, and some states charge tax on the benefits. There is no federal tax on living benefits." How and when should living benefits be used? Living benefits can only be used according to the terms outlined in the policy. It’s important to understand these terms before accessing any living benefit, especially when accelerating the death benefit. Ben Glancz, Financial Representative“If you plan on tapping into the living benefit option of your policy, you need to know what the ramifications will be on your death benefit, and what expenses you won’t be able to pay for because of this.” Policyholders can choose to accelerate some of the death benefit when the insured person has a terminal, chronic, or critical illness depending on the terms of the rider. Medical treatment and hospice care can be quite expensive in these cases, so being able to access additional funds is valuable. It makes it easier to seek treatment because there is protection from debt. When accessing these funds, it’s important to weigh future expenses with immediate expenses. Matt Schmidt, Diabetes 365“While living benefits on a life insurance policy sounds great initially, many people forget that the amount a person accelerates while living, will offset the original amount of the life insurance. Many people take out a policy, for a specific financial reason. If a person 'dips' into their policy after suffering from a major health issue, and then passes away, it could leave their family without the proper amount of life insurance they need.” Once you’ve received an accelerated death benefit payout, use those funds wisely. Chane Steiner, Crediful CEO“If you have medical bills to pay, pay them (but not without trying to negotiate). The rest, put it in a high yielding savings account (about 2 percent per month). You'll be dipping into it for your medical expenses, but at least you'll be receiving some interest on that money as you wait to need it.” Are living benefits worth it? Understanding what living benefits options are available and thinking critically about potential future needs will help you determine which ones you might want added to your life insurance policy. Weighing the pros and cons will also help you decide if a living benefit is worth adding to your policy. Always be sure that you understand the terms of your life insurance policy and how the living benefit can be used. These riders can be a good way to protect your family’s current in addition to their future financial security.
Before you finalize your life insurance policy, you should consider life insurance riders. These policy riders can provide additional insurance protection and give you more flexibility and options in the future."When considering various types of insurance riders, make sure you understand the cost and the terms under which you'll be able to make a claim. Conduct a bit of independent research to find out how likely you are to be eligible to make a claim, as well," says Lingke Wang, co-founder of Ethos.Below are life insurance experts’ thoughts on useful and common life insurance riders. 1. Disability waiver of premium rider Insurance and savings is how many people prepare for emergencies and unpredictable what-ifs. Life insurance premiums can be very affordable depending on your age, the amount of insurance purchased, and your budget. Experiencing a long- or short-term disability can affect your ability to work and what your budget looks like. Fortunately, there are two ways to handle this situation: add a disability premium waiver or buy disability insurance.Mike Raines, an independent life insurance agent, agrees: “The waiver of premium rider is probably the most valuable, especially if the premium on the life policy is significant. This rider added to the policy will typically waive the premium if the insured is disabled and unable to work. Often times the waiver of premium option will drop off a policy at an older age such as 55.”This rider may be more important to add depending on what you do for a living.Chelsie Ball, a licensed life insurance agent with TermLife2Go.com, says, “As with all life insurance the riders you add to a policy depend on your individual situation. Waiver of premium rider can be a great rider to add if you work in more high risk industries. This might be good to invest in if your job puts you at a higher risk of being injured.”While this is a handy rider to include with your insurance policy, it is limited.“Often times the waiver of premium option will drop off a policy at an older age such as 55,” Raines adds.However, considering the limitations of a disability rider, purchasing disability insurance may be a better idea in the long run. Wang explains, “If a waiver of premium rider looks tempting, keep in mind that it's usually more cost-effective to buy adequate disability insurance. 30 percent of workers experience disability at some point, so buying this type of insurance may be a better option for you.” 2. Guaranteed insurability rider Some people buy the amount of life insurance they can afford and plan to buy additional coverage later.David Duford, from Buy Life Insurance for Burial, says, “Normally, to add coverage, an applicant must apply for a new life insurance policy and is subject to underwriting their current state of health, even if the applicant already owns life insurance with the same company.”If you plan to add additional health insurance coverage later, a guaranteed insurability rider on your policy is a good idea.Ball advises “A guaranteed insurability rider is a life insurance rider that allows the owner of a life insurance policy to buy additional life insurance with no underwriting. This can be highly beneficial if after your original purchases your finances grow and your health also decreases. Generally, health conditions can either increase your rate or sometimes your coverage request can be declined.” 3. Long-term care rider No one really knows what the future holds. When it comes to health conditions, aging is tough and you may need to have someone available to take care of you around the clock.Dina Golub, Director of Operations for AIA Direct, says, “Another rider that is also valuable, but less common, is a long-term care rider. This type of coverage offers benefits if the policyholder is moved to long-term care, such as a nursing home.”Of course, this rider is probably only worth it if you are purchasing a permanent life insurance policy. 4. Accelerated death benefit rider John Holloway, Co-founder and Agent at NoExam.com, says, “Another common rider is the accelerated death benefit rider. If the insured is diagnosed with a terminal illness, it allows them to receive some of their death benefit to cover medical expenses.”Medical care can be quite expensive, so this rider helps defray the costs of hospice care. It is important to note, that the total sum of the death benefit does not change. An accelerated death benefit just allows for part of the death benefit to be disbursed early. 5. Child term life rider If you plan on having a family, adding a child term life rider is a good option.Holloway advises, “One rider I recommend often is the child term life rider. It provides coverage for children, without having to apply for a separate policy. This is a better option than buying some of the whole life policies on the market that are marketed as children's life insurance.” 6. Accidental death rider Duford says, “An accidental death rider pays an additional death benefit, typically two- or three-times the coverage amount, if the insured dies by means of an accident. The rider is very affordable, and provides a way to maximize quantity of coverage, especially if the insured cannot afford full natural death coverage.”Wang adds, “Accidental death and dismemberment insurance is almost never a good deal. It's a better bet to buy additional term life insurance coverage. The changes of an accidental death and dismemberment rider increasing the actual death benefit are very low since most people don't die in an accident or ever experience dismemberment.” 7. Return on premium rider Life insurance, especially term life insurance, can seem like a good way to throw away money. The younger you are, the less likely you are to die. However, some insurance companies offer a return on premium rider with their term life insurance policies.Ball offers this advice: “If you are looking to invest in a term policy to cover some of your expenses you may want to consider a return of premium rider. This rider allows paid premiums to be returned if the insured outlives the term of the policy. The exact details of this rider can vary based on the carrier.” With a return on premium rider, you’re purchasing insurance protection for your family and friends and also setting aside future savings for yourself.
Life insurance can provide peace of mind for your loved ones' financial security should you pass away unexpectedly. Below are some of the best tips and advice that people have received about purchasing life insurance: 1. Buy life insurance young Purchasing a life insurance policy at a young age, even if you don’t think it’s necessary, can save you money in the long-run.Matt Schmidt, CEO of Diabetes Life Solutions, says “As a 23 year old, my father who was a financial advisor told me to lock in a term life insurance policy, as it'll never be cheaper. I kind of laughed but ultimately did do just that.Six years later, I got married and got additional coverage. By this point, I had developed diabetes, and my rates on new policy were much higher. The lesson I learned was you don't know what the future holds. Never did I think that I would develop diabetes or any other chronic illness.Young people, lock in policies while you are young and healthy.” 2. Consider ALL your options There is a lot to consider when buying a life insurance policy. Should you get a temporary (term) policy or permanent policy? What kind of permanent policy — whole life, universal life, or variable life?Additionally, you’ll need to choose a life insurance company. Anthony Martin, owner and CEO of Choice Mutual, says “With life insurance, there is no one company that is best for everyone. To get the best plan for you, it’s critical that you compare offers from multiple companies. If your short list is comprised of only well-known companies, you hamstring yourself in a big way.”Cast a wide net when looking at life insurance companies, but make sure you choose reliable companies. Martin says, “A consumer needs to be open to any life insurance company that has been in business for at least 30 years and has an A rating with A.M. Best (which like 90%+ do).” 3. Talk to an independent agent Working with an independent insurance agent can help you investigate and consider all of your options at different companies. You won’t have to worry about the insurance agent needing to make a sale for a specific company or a specific policy.Martin says “Work with an independent agent that represents 20 or more insurance companies. No one company can be best for everyone. That is because they all underwrite in their own way. Furthermore, everyone's situation is different, which is why it's critical that their agent can simply pivot to whichever carrier views their health most favorably.” 4. Understand the terms and conditions Life insurance is an investment. With monthly payments over time, individuals can spend considerable money on life insurance.If you understand the terms of your policy, you’ll know exactly what you are going to be paying for. This knowledge can help you be confident in your purchase and investment.Ketan Kapoor, CEO and co-founder of Mettl, says “Terms and conditions are such miniscule-written content that it’s a normal practice to ignore them. Ask as many questions as it takes to understand the jargon from different people or insurance agents. It's better to read and understand everything in entirety at length at your own leisure rather than repenting later in time.”To be confident in your decision, make sure that you’ll have enough time to consider the policy. David Bakke, insurance expert at Money Crashers, says “Be sure to choose a policy that allows a certain waiting period before you choose to buy. That gives you a last recourse to decide whether the policy is right for you based on coverage and other aspects, geared toward your personal needs.” 5. Look into policy riders Life insurance companies offer all kinds of riders, like an accelerated death benefit, accidental death benefit, long-term care insurance, disability insurance, and more.Bakke says “One great piece of advice I received is that riders to your policy are mostly needed, especially if you have special circumstances. You need to be specific as far as what you need in order to get the coverage you want.”One rider that individuals should consider is term conversion. This allows a term life insurance policy to become a permanent life insurance policy.Sam Price, Independent Agent and Owner of Assurance Financial Solutions, says “The best life insurance advice I've ever been given is to consider using a company with good conversion options. Most people start their life insurance with term life insurance which is a great way to get a good deal of coverage for less money at a time in you life when you need more but perhaps can't afford a large premium. But for many people who develop health issues later in life, that first term policy may be the only life insurance they'll ever have.”Permanent life insurance policies are more expensive than term life insurance policies. If you can’t afford to invest in a permanent life insurance policy now a term conversion rider can help you have a lower monthly premium payment.Price says “Legally, life insurance companies have to offer at least one option for conversions, even if it's a bad option. If you find yourself being that person who can no longer qualify for life insurance, having multiple conversion options is the best way to fit your budget and life insurance needs and is something everyone should consider in the buying process.”