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Life insurance has long been a mainstay of long-term financial planning. While most people think of it purely as protection should you die too soon, a whole new twist in thinking is breathing new life into so-called death benefits. Now, certain life insurance products can be structured so that you do not have to die to take advantage of your death benefit. Accelerated Benefits Riders (ABRs) allow you to access all or a part of your death benefit should you fall victim to a qualifying terminal, chronic, or critical illness/injury. With an ABR, you can access this often-sizable amount of money to help pay for expenses when you may need it most––when you are alive and struggling with long-term care (LTC) challenges. What are the odds that you will need long-term care? LongTermCare.gov tells us that almost 70 percent of people turning 65 will need long-term care at some point in their life. If you have or are considering life insurance, it is a smart move to ask about Accelerated Death Benefit Riders. ABRs are optional, and the use of the benefit is generally unrestricted. (1) Once you qualify, you can use your accelerated death benefit to help pay for a wide variety of expenses, including but not limited to:
As you can see by the breadth of expenses listed above, accelerated death benefits are designed specifically to help provide much-needed financial relief when you need it most. Let’s take a closer look at the three health conditions an ABR covers.
A terminal illness is defined as “a disease that cannot be cured or adequately treated and is reasonably expected to result in the death of the patient in a short period of time” (Wikipedia). For general purposes of an ABR, the illness must be certified by a physician with the expectation that the illness will result in death within 24 months of that certification. In cases of terminal illness, the benefit payment will be provided in a lump sum. While there is no waiting period or annual benefit limit, there is a lifetime limit on the total amount of benefits received should you have multiple Accelerated Benefit Riders across several policies.
A chronic illness such as arthritis, COPD, diabetes and many others can drastically impede your ability to perform daily living activities, resulting in the need for day-to-day living assistance. Such activities include, but are not limited to, bathing, dressing, eating, and going to the bathroom. If within the past 12 months a doctor has determined that you are unable to perform without assistance two out of six such activities for a period of at least 90 consecutive days, you can qualify to access your accelerated death benefits. The same applies should you be deemed cognitively impaired. To access your accelerated death benefit for a chronic illness, the rider will generally need to be in force for two years. There is an annual limit to the number of benefits you can receive. In addition, a lifetime limit on benefits received applies should you have multiple Accelerated Benefit Riders across several policies.
Critical illness and/or injury is a life-threatening condition, which is generally strictly defined. National Life Group, a diversified group of financial services companies, lists examples of ABR qualifying critical illnesses or critical injuries as follows:
The severity (Minor, Moderate, Severe, Life-Threatening) of the illness or condition impacts the discounted benefit for which you may be eligible. A “Life Threatening” designation will result in the highest payout. To accelerate benefits payment via an ABR, the rider must be in place 30 days prior to diagnosis, in most cases. There is no annual limit on the total amount of benefits received; however, there is a lifetime limit should you have multiple Accelerated Benefit Riders across several policies.
Accessing your death benefit funds via an Accelerated Benefits Rider is fairly straightforward. In the case of terminal illness or critical illness/injury, you can request that your benefit payments be fully accelerated, on a discounted basis, where you may use the lump sum payout as you need. Or, if you only want or need a portion of your benefit, you may choose to receive a partial payout and leave the remaining death benefit to your beneficiary. Should you not need funds to cover long-term care expenses, your policy will remain intact with the full benefit available to your beneficiary. For chronic illnesses, you do not have to be in a licensed facility to receive payments, and you may reapply for benefits every 12 months. After the waiting period mentioned above, you can choose to accelerate payments on portions of your death benefit each year. Your policy will remain intact with the full benefit available to your beneficiary should you never apply for ABR benefits.
While many Accelerated Benefit Riders are advertised at “no additional cost,” nothing in life is free. While it is true that “no-cost” riders require no out-of-pocket expense on your part, the cost of the rider is deducted from the total benefit available. At the time of claim, your life insurance carrier will use a formula that factors interest rates, mortality rates, and the cash value of the policy to discount the total amount of benefits paid.
Done right, life insurance with an Accelerated Benefit Rider can help you better plan for LTC and other expenses while still helping protect your family from financial hardship should your time come too soon. For more information or to schedule a free consultation on how we may be able to help breathe life into your life insurance policy’s death benefit, contact us today. (1) Use of ABR benefits in Massachusetts is restricted solely to paying for Qualified Long-Term Care services. Qualified Long-Term Care services are defined as necessary diagnostic, preventative, therapeutic, curing, treating, mitigating and rehabilitative services including maintenance or personal care services that are required by a chronically ill individual where the services are provided pursuant to a plan of care prescribed by a licensed health care professional.