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What Are "Living Benefits"?
In relation to life insurance, everyone knows what a “death benefit” is.  It is the
obvious reason that most consumers buy it.  If (when) they die, a beneficiary
collects the face amount of the policy.  Pretty basic stuff.
In recent years some attention has been given by carriers to provide benefits that
an insured could take without the inconvenience of being dead.  Some refer to it as
life insurance you don’t have to die to use.  In the industry we refer to these as
“Living Benefits” for obvious reasons. 
What are Living Benefits?  They are specific coverage categories that trigger an
option on the behalf of the insured to take some portion of the face amount of a life
insurance policy.  The amount of the advance against the policy will vary based on
the severity of the ailment, i.e., its impact on life expectancy, and specific carrier
criteria. Let’s examine the types of events that trigger these Living Benefits.
· Terminal Illness - This is the original triggering event and chances are if you
have a life insurance plan purchased recently, it is already included.  This
benefit was precipitated by the industry to combat lapse in coverage due
to “viatical settlements”.  Essentially a broker would purchase the plan for
cash at a discount when the insured was in a disadvantaged condition. 
These settlements still exist, however in cases where the insured is
medically diagnosed with a life expectancy anywhere from 12 - 24 months,
most carriers with allow an advance of up to 95% of the face amount.
If the life expectancy is greater than 24 months, then a portion of the plan
may still be captured where the plan includes other living benefits.  A
structured settlement would still be available although there are many
regulatory hurdles beyond the scope of most insurance agents.  Here are
some other triggering events.
· Critical Illness - This is possibly the most potentially useful situation. 
Taking the example of a 55 year old who would still qualify for a 30 year
term with certain companies, the likelihood of a serious illness is pretty
high.  Even a mild event can trigger some option to exercise an advance. 
Critical illnesses may include but are not limited to:
o Cancer
o Heart Attack
o Stroke
o Coma
o Severe burns
· Chronic Illness - This is a rider that covers loss of functional capacity and
may be physical or cognitive related.  It may be as a result of illness or
injury and requires certification by a licensed medical professional.  
Generally these riders pay out similarly to disability benefits i.e., by the
month. 
· Long Term Care - Also referred to as an extended care rider, this option
serves to accelerate benefits for similar condition that would trigger a
chronic illness rider.  Benefit levels vary widely and the benefit may or may
not be tax free.  Usually as with the Chronic Illness rider (some would
suggest these are one and the same), the funds may be used for any
purpose although there are exceptions.  Also it would be important in
considering this or the Chronic Illness rider to determine if the payout is an
indemnity (fixed) or a reimbursement (cost based).
Frequently asked Questions
Q. How much more does this cost?
A. Terminal Illness is generally included in most policies.  For other conditions, the
cost is incremental for those who are healthy.  In general it is less expensive than
purchasing separate plans to assure coverage and especially the better stand alone
critical illness (CI) and disability income (DI) coverage types end as early as age
60.  Also the riders tend to be more lenient in underwriting (although not a lot) than
stand alone plans in our opinion.
Q. Can I add the riders later?
Not usually.  First the carrier has to offer them and although most do there are no
assurances.  Most life insurance plans offer what is called “conversion rights”
which are the rights to change from the current plan to another with the same
company without going through underwriting.   Also, where the company may offer
coverage with these options it may not be a conversion option.  Check with your
insurer or call us.  We know the options inside out.
Q.  If I exercise say a Critical Illness rider what happens?
A.  The insurer in most cases will look at the diagnosis which must be by a licensed
medical professional (generally an MD).  Based on the severity they will allow in
most plans a percentage of the death benefit (DB) up to a limit.  If you decide to
take a benefit, you are not required to take the entirety.  It is paid out in a lump
sum.
Here is an example:  The face amount is $500,000.  There is a diagnosis of heart
attack and the accelerated benefit is 30%.  The insured takes 20% or $100,000. 
With many plans but not all, the death benefit is reduced to $400,000 and the
monthly premium is reduced accordingly.  It is important to note that these
distributions are subject to income tax, so especially in the case of a terminal
illness, it is advisable to take advances only to cover needs considering the balance
is tax free to the beneficiary soon enough.
Q.  If I exercise a Chronic Illness or Long Term Care (Extended Care) rider what
happens.
A.  This is different in many ways.  For one the proceeds are generally not subject
to income tax under (101g).  That is a good thing.  Some plans as mentioned
previously, pay out on a reimbursement basis attached to actual costs.  The ones
that do not fit that category pay out on a fixed monthly rate in dollars or a
percentage of the DB.  The DB is reduced similarly and if there is cash value in the
plan it may also be affected. 
Speak with your agent about the value of Living Benefits.  Especially with greater
life expectancies and advances in medicine, the ability to offset loss of income or
handle costs of recovery are becoming more relevant. 
Get Instant online comparison term life quotes now.
What Are "Living
Benefits?
In relation to life insurance, everyone knows what a
“death benefit” is.  It is the obvious reason that most
consumers buy it.  If (when) they die, a beneficiary
collects the face amount of the policy.  Pretty basic
stuff.
In recent years some attention has been given by
carriers to provide benefits that an insured could take
without the inconvenience of being dead.  Some refer
to it as life insurance you don’t have to die to use.  In
the industry we refer to these as “Living Benefits” for
obvious reasons. 
What are Living Benefits?  They are specific
coverage categories that trigger an option on the
behalf of the insured to take some portion of the face
amount of a life insurance policy.  The amount of the
advance against the policy will vary based on the
severity of the ailment, i.e., its impact on life
expectancy, and specific carrier criteria. Let’s
examine the types of events that trigger these Living
Benefits.
· Terminal Illness - This is the original
triggering event and chances are if you have a
life insurance plan purchased recently, it is
already included.  This benefit was
precipitated by the industry to combat lapse
in coverage due to “viatical settlements”. 
Essentially a broker would purchase the plan
for cash at a discount when the insured was
in a disadvantaged condition.  These
settlements still exist, however in cases where
the insured is medically diagnosed with a life
expectancy anywhere from 12 - 24 months,
most carriers with allow an advance of up to
95% of the face amount.
If the life expectancy is greater than 24
months, then a portion of the plan may still be
captured where the plan includes other living
benefits.  A structured settlement would still
be available although there are many
regulatory hurdles beyond the scope of most
insurance agents.  Here are some other
triggering events.
· Critical Illness - This is possibly the most
potentially useful situation.  Taking the
example of a 55 year old who would still
qualify for a 30 year term with certain
companies, the likelihood of a serious illness
is pretty high.  Even a mild event can trigger
some option to exercise an advance.  Critical
illnesses may include but are not limited to:
o Cancer
o Heart Attack
o Stroke
o Coma
o Severe burns
· Chronic Illness - This is a rider that covers
loss of functional capacity and may be
physical or cognitive related.  It may be as a
result of illness or injury and requires
certification by a licensed medical
professional.   Generally these riders pay out
similarly to disability benefits i.e., by the
month. 
· Long Term Care - Also referred to as an
extended care rider, this option serves to
accelerate benefits for similar condition that
would trigger a chronic illness rider.  Benefit
levels vary widely and the benefit may or
may not be tax free.  Usually as with the
Chronic Illness rider (some would suggest
these are one and the same), the funds may
be used for any purpose although there are
exceptions.  Also it would be important in
considering this or the Chronic Illness rider to
determine if the payout is an indemnity (fixed)
or a reimbursement (cost based).
Frequently asked Questions
Q. How much more does this cost?
A. Terminal Illness is generally included in most
policies.  For other conditions, the cost is incremental
for those who are healthy.  In general it is less
expensive than purchasing separate plans to assure
coverage and especially the better stand alone critical
illness (CI) and disability income (DI) coverage types
end as early as age 60.  Also the riders tend to be
more lenient in underwriting (although not a lot) than
stand alone plans in our opinion.
Q. Can I add the riders later?
Not usually.  First the carrier has to offer them and
although most do there are no assurances.  Most life
insurance plans offer what is called “conversion
rights” which are the rights to change from the current
plan to another with the same company without going
through underwriting.   Also, where the company
may offer coverage with these options it may not be
a conversion option.  Check with your insurer or call
us.  We know the options inside out.
Q.  If I exercise say a Critical Illness rider what
happens?
A.  The insurer in most cases will look at the
diagnosis which must be by a licensed medical
professional (generally an MD).  Based on the
severity they will allow in most plans a percentage of
the death benefit (DB) up to a limit.  If you decide to
take a benefit, you are not required to take the
entirety.  It is paid out in a lump sum.
Here is an example:  The face amount is $500,000. 
There is a diagnosis of heart attack and the
accelerated benefit is 30%.  The insured takes 20%
or $100,000.  With many plans but not all, the
death benefit is reduced to $400,000 and the
monthly premium is reduced accordingly.  It is
important to note that these distributions are subject
to income tax, so especially in the case of a terminal
illness, it is advisable to take advances only to cover
needs considering the balance is tax free to the
beneficiary soon enough.
Q.  If I exercise a Chronic Illness or Long Term
Care (Extended Care) rider what happens.
A.  This is different in many ways.  For one the
proceeds are generally not subject to income tax
under (101g).  That is a good thing.  Some plans as
mentioned previously, pay out on a reimbursement
basis attached to actual costs.  The ones that do not
fit that category pay out on a fixed monthly rate in
dollars or a percentage of the DB.  The DB is
reduced similarly and if there is cash value in the plan
it may also be affected. 
Speak with your agent about the value of Living
Benefits.  Especially with greater life expectancies
and advances in medicine, the ability to offset loss of
income or handle costs of recovery are becoming
more relevant. 
Is There a Tax Free Endowment Option For My Loved Ones?

But, I Am Uninsurable...
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