There are a lot of misconceptions when it comes to life insurance with living benefits. Understandably, many people are not even aware that such an option exists and what it actually means. In this article, we would like to address that and answer whether term insurance has living benefits. We’ve divided the information into several topics. Please feel free to review them all or to jump to the ones that you are most interested in.
Here is what we would cover:
Before diving deeper, we would like to advise you that we are life insurance brokers. In other words, we are not employees of ANY particular company and will provide you with our unbiased advice. We will take the time to ask you the important questions and present you with a custom solution. Life insurance is ALL we do.
What is term insurance and when it makes sense to get it?
Term life insurance is a type of life insurance. It offers level coverage for a fixed premium during the life of the term. In other words, if you get $250,000 life insurance for 20 years and the monthly rate is $30, you would be paying $30 per month for the next 20 years. Should you pass away, your family would receive a check for $250,000. The beneficiary would be in complete control of how to spend the money and he or she would not have to pay it back.
Here are some of the questions we’ve received when it comes to term insurance:
Q: Can I cancel my policy at any time? If yes, are there any fees or penalties:
Yes, you can cancel your term life insurance at any time. Life insurance is at-will participation and you will not pay any fees or early cancellation penalties.
Q: Do I get my money back at the end of the term?
No, with most of the term policies on the market today you do not get your premium back at the end of the term. There are some options that offer a return of premium.
Q: Is there a waiting period for my policy to start?
No, most term insurance policies are day 1 coverage and include natural death, as well as accidental death.
When does it make the most sense to get a term policy?
It makes the most sense to get term insurance when you are on a budget and when you are trying to protect a temporary need. In other words, your main objective is temporary and you may not need as much coverage down the line. For example, to cover the mortgage, any other loan, or while the kids are young and financially dependent on you.
Temporary need = temporary coverage
What are living benefits?
Living benefits, or also known as accelerated benefit riders, are features of life insurance, allowing you to access your death benefits while still alive. In other words, you do not have to die for your policy to payout. We’d like to think of living benefits as an upgraded version of traditional life insurance.
Let’s give you an example:
Suppose the insured, Mary, is diagnosed with stage 3 breast cancer. She has a $500,000 life insurance policy with living benefits, allowing her to accelerate the whole death benefit (or a part of it) while still alive.
Mary has health insurance, but she needs extra funds to cover her co-pays, mortgage, and provide for her kids even though she is not able to work full time while getting treatments.
She could file a claim against her life insurance and ask them to accelerate half of her death benefit today. Now, Mary would NOT receive a $250,000 check. The company would apply something called an actuarial discount based on the severity of the condition and her life expectancy. After the calculations, the company offers Mary a check for $125,000 today and she would have a reminder of $250,000 left as life insurance.
This is a relief for her, as she could focus her energy on healing rather than stressing over finances.
This is just one of the examples of how you could use life insurance with living benefits. If you would like to learn more about the product, you can reach out to us, or check out the following articles we have on the topic:
Does term insurance have living benefits
Ok, since we covered what is term life insurance and went over living benefits, now it’s time to answer if term life insurance has living benefits.
The answer is YES. You can have living benefits on term insurance. In addition, there are some low-cost permanent options that also offer living benefits, like a guaranteed universal life.
Think about it, having a term life with living benefits provides you with comprehensive protection while being mindful of the cost. We are strong believers that given the choice, you should secure life insurance with living benefits.
Here are 5 important things to know/check about term insurance with living benefits:
Does the policy include all 3 living benefits riders: chronic, critical, or terminal?
Note, that not every policy that offers living benefits includes all 3. Some policies allow you to accelerate your benefit if you are diagnosed with a terminal condition. In addition, some carriers have different riders/benefits based on your state of residency; check out living benefits in California.
Are you able to convert your policy into permanent insurance
One thing we know for sure is that life could be unpredictable. Therefore, we want our clients to have choices should their circumstances change. One great feature that most term policies, not all term policies, have is convertibility. In other words, you can change your term insurance into lifelong coverage WITHOUT answering any health questions.
What is the maximum allowed benefit you could accelerate
Some carriers limit the maximum death benefit you can accelerate. For example, some companies would allow up to 100% of the death benefit, while others only up to 24% of the death benefit.
Do you need to take a medical exam?
While for some, having a medical exam is not an issue, we want you to have the choice and decide should you complete one or not.
The company’s ratings and reviews
As brokers, we are very selective of the carriers we represent. We are looking for A rated companies with a solid history. However, we would strongly urge you to take the time and to review them for yourself. We want to make sure you feel 100% confident with the company since it is not always easy to change your life insurance policy.
Yes, there are term insurance policies that offer living benefits. We strongly advise you to explore your options and see if you qualify. Life could be unpredictable. It is nice knowing that should something happen you might be able to access your life insurance benefit while alive.
We hope you find this helpful and please DO reach out to us if you have any questions.