Term life insurance is essential for financially protecting your loved ones, business or estate. There is not another form of insurance or a financial tool you can use that provides the value you get from term life. It’s inexpensive, simple to maintain and easy to purchase.
The catch is, of course, there is no benefit to you, your family or your business unless you die. And while that’s simply the nature of life insurance, it’s not exactly the most desirable trade off. But wouldn’t it be nice (The Beach Boys, anyone?) if term life policies offered benefits while you were still living? Well — they don’t.
What are Living Benefits?
Living benefits are exactly what the name implies: benefits paid from the term life policy while you are living. These are more commonly known as accelerated death benefits. With these benefits, the life insurance company pays or advances a portion of the policy’s death benefit to you to pay for care or treatment. The company will then pay the balance of the death benefit to your beneficiary(s) if you were to die.
Transamerica Life Insurance Company has integrated this idea into a new term life offering called Trendsetter LB (Living Benefits). The Trendsetter LB policy pays accelerated death benefits to policy owners who are either chronically, critically, or terminally ill.
Chronic Illness Accelerated Death Benefits
According to the Centers for Disease Control and Prevention, chronic diseases such as heart disease, stroke, and cancer are among the most costly of all health problems in the U.S. If you were to become chronically ill during the term of the policy, the company would advance up to 90% of the policy’s coverage amount ($500,000 maximum) to help you pay for treatment or to replace lost income.
To qualify for this benefit, a licensed health care practitioner has to verify you are unable to perform two out of the six activities of daily living or ADL’s (bathing, continence, dressing, eating, toileting and transferring).
Critical Illness Accelerated Death Benefits
If you were to suffer a critical health condition such as cancer, heart attack, stroke or paralysis, you could be eligible to receive accelerated death benefits from your policy. Once again, the company will advance up to 90% of the policy’s face amount ($500,000) maximum if a licensed physician determines you are critically ill.
Terminal Illness Accelerated Death Benefits
The terminal illness benefit is for more serious conditions where a licensed physician has diagnosed you to have less than 12 months to live. This policy will advance up to 100% of the policy’s face amount, with a maximum of $500,000.
The terminal illness benefit has been around for a long time and is not unique to Transamerica Life’s Trendsetter LB policy. In fact, it is a very common benefit included in most term life insurance policies. The benefit amounts and terms do vary by company, so be sure to ask your agent for specifics if this benefit is important to you.
Accelerated Death Benefit Limitations
It’s important to note there are some limitations to be aware of with these types of benefits.
- State Availability – Accelerated death benefits are not available in every state. For example, Transamerica’s LB policy is not available in New York. It is available in Texas; however, the terminal illness portion is not. Many standard term life policies that offer accelerated death benefits are also limited by state restrictions. It’s best to confirm availability in your state with your agent.
- Benefit Limits – Many benefits are limited regarding amount and frequency. For example, although the chronic illness benefit allows up to 90% of the policy’ face amount, that amount is limited to 24% per year. There may be other limitations based upon individual circumstances, such as the life expectancy.
- Fees – Accelerated death benefits are essentially loans against the policy’s face amount. The company will use a benefit interest rate used to determine the present value of future benefits. This rate, along with administrative fees which vary by company, will be factored into the amount of the benefit allowed.
There are many factors considered by the life insurance company when evaluating a request for accelerated death benefits. It’s a good idea for you to get a solid understanding of these benefits before you purchase a policy. You don’t want to wait until a chronic illness strikes to learn how your policy works.