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. According to Investopedia, the death benefit “is the amount on a life insurance policy that is payable to the beneficiary when the insured passes away.” With a 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 Benefits Riders. ABRs are optional, and the use of the benefit is generally unrestricted. (1)
Once you qualify, you can use your death benefit to help pay for a wide variety of expenses, including but not limited to:
- Household expenses and regular bills
- Adult day care or nursing home care
- Modifying your home to accommodate disabilities/age-related issues
- Quality of life expenditures
As you can see by the breadth of expenses listed above, Accelerated Benefit Riders 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 ABR benefits. The same applies should you be deemed cognitively impaired. To access your ABR’s benefits for a chronic illness, the rider will generally need to be in force for two years. There is an annual limit to the amount of benefits you can receive. In addition, a lifetime limit on benefits received applies should you have multiple Accelerated Benefit Riders across several policies.
A 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: