Life insurance can benefit you while you’re still alive
When one thinks of life insurance, more often than not, the thought goes to the benefit that is paid to loved ones at a person’s death.
However, more and more policies are coming equipped with other features that create benefits that can be used during a person’s life. These “living benefits” can provide value by:
* Accelerating the death benefit when the individual needs it most.
* Offering the option of returning nearly all of the premium after 20 or 30 years.
* Providing income to help offset chronic illness expenses such as home health care or skilled nursing care, or any type of personal expenses.
These “living benefits” can provide the insured/owner of the life insurance policy options when they need it most as well as life insurance death benefit protection as the individual’s needs change.
A frequent living benefit found in most life insurance policies is a rider that allows an insured person to use nearly all of the policy’s death benefit in the event he or she is diagnosed with a terminal illness. A doctor’s diagnosis defines terminal illness as a person having 12 or less months to live.
This particular benefit will provide income tax-free money to the person as the insurance company accelerates the death benefit while the individual is still alive. There are no restrictions on how the funds are used. The insured may want to take one last family vacation, or pay for a child’s or grandchild’s education, pay off the house loan or anything else. The owner of the policy is provided a lump sum accelerated death benefit and they determine how best to utilize the proceeds.
A relatively new feature being added to term life policies is called Return of Premium. When added to a 20- or 30-year term life policy, the Return of Premium rider allows the policy owner to recover nearly all of the policy’s paid premium at the end of the term. The policy must be in force at the time.
For example, if a 20-year term policy’s annual premium is $1,000 and is paid in full each year, then at the end of 20 years, the policy owner can surrender the policy and get back $20,000 income-tax free. This makes the 20 years of out-of-pocket insurance expense to end up being zero.
The Return of Premium feature may also allow the policy owner to reduce and “lock in” the death benefit at a reduced amount and be guaranteed to never have to pay another premium – the policy is literally “paid up.” For example, the $250,000 20-year term policy may reduce to $150,000 after 20 years and is guaranteed to never require any additional premium. In the meantime, the policy’s cash value will continue to increase even though no additional premium is required.
Written for 20- and 30-year terms, this life insurance contract is excellent coverage for mortgages or long-term loans, giving the policy owner the option of recouping the paid premium for the time period selected, supplementing other retirement savings. The policy owner can also keep the policy in a reduced, paid-up status, guaranteeing income or death benefit for a beneficiary in the future without having to pay any additional premiums.
Costs associated with adult home care or skilled nursing care for seniors have long been a concern for many as they age. In fact, 68 percent of adults older than age 65 have two or more chronic conditions.[1]
More life insurance companies have enhanced their life insurance polies to offer the policy owner the ability to accelerate their death benefits to pay for any type of expenses associated with a chronic illness, including dementia and Alzheimer’s. The individual could even decide they prefer to utilize the accelerated death benefit for any other financial goal or need they may have.
Did you know, recent studies indicate:
* Of the $4.1 trillion spent annually for healthcare, 90 percent of it is for people with chronic and mental health conditions.[2]
* More than 43.5 million informal and family caregivers provide care to individuals who are ill, disabled or aged in the U.S.[3]
* More than 15 million people care for someone who has Alzheimer’s or other forms of dementia.[4]
As previously stated, people unfortunately view life insurance as a “death” benefit, something for the beneficiary. Today it can be truly viewed and utilized as life insurance, something that can be utilized by an insured while they are living.
· Return of premium options
· Terminal Illness benefit
· Chronic Illness
Life insurance is still the most cost-effective means of meeting final needs, providing income replacement for your loved ones in the event of a premature death, or passing on wealth to your beneficiary income tax-free. However, the enhancements made to life insurance policies make it valuable—now more than ever.
If you answer yes to this question: “Is it important to you to be able determine when and how you want to or need to utilize your life insurance policy?” Then today’s life insurance policies are tailored for you.
We call it Life Insurance for a reason – you can use the living benefits when you need them most!
[1] National Council on Aging. (2021, April). The Top 10 Most Common Chronic Conditions in Older Adults. Retrieved May 24, 2022, from NCOA: National Council on Aging: https://www.ncoa.org/article/the-top-10-most-common-chronic-conditions-in-older-adults
[2] National Center for Chronic Disease Prevention and Health Promotion (NCCDPHP). (2022, May). Health and Economic Costs of Chronic Diseases. Retrieved May 24, 2022, from Centers for Disease Control and Prevention: https://www.cdc.gov/chronicdisease/about/costs/index.htm
[3] The National Alliance for Caregiving. (2020). Caregiving in the U.S. 2020: A Focused Look at Family Caregivers of Adults 50+. Washington D.C.: AARP. Retrieved May 24, 2022, from: https://www.caregiving.org/wp-content/uploads/2021/05/AARP1340_RR_Caregiving50Plus_508.pdf
[4] The National Alliance for Caregiving. (2020). Caregiving in the U.S. 2020. Washington D.C.: AARP. Retrieved May 24, 2022, from: https://www.caregiving.org/caregiving-in-the-us-2020/
Alan T. Girton is an agent with Indiana Farm Bureau Insurance at 3505 S. LaFountain St., Kokomo IN.