People mostly purchase life insurance to leave some financial compensation for their beneficiaries after their death. However, it doesn’t cover all financial hurdles, especially when the policyholder is alive. In this article, we’ll go through the living benefits of life insurance. Fortunately, you can add benefits to your policy to give you financial compensation in case of a terminal illness. You can also enable the accelerated benefit of the company if you have a chronic illness.
What Are Living Benefits?
Living benefits can help you in uncertain circumstances. It means you can avail yourself of benefits before your death, and your policy type doesn’t matter. Primarily, there are three significant additions that you can consider when purchasing term life insurance.
- An accelerated death benefit rider involves the insurance company advancing a large portion of the death benefit to the policyholder if they get a terminal illness. However, the coverage varies with the insurance companies, and it depends on the policy you select. Some policies will provide you with a portion of the benefit that can pay for your long-term care cost.
- Return of premium rider is an addition that you have to purchase, and the additional premium is based on the applicant’s age. Also, this rider refunds the entire premium if the policyholder outlives the policy’s life. It can provide a perfect solution to save for the future.
- Disability waiver premium will waive off all the premium if the policyholder becomes critically ill or face a disability. It can help a person to keep their policy in force while they start getting their disability benefits.
Benefits for Permanent Insurance Policies
Most permanent life insurance has a cash value that they can utilize in uncertain circumstances. The cash value build consists of a portion of the premium and any interest payment. Moreover, you can access such benefit in different ways:
- Policyholders who require cash can simply withdraw a lumpsum amount. However, the company usually charges a withdrawal fee.
- Policy loans are common ways to access cash value. They have interest charges, but the policyholder doesn’t have to pay the loan and interest because it’ll be deducted from their benefit when the applicant dies.
- Policy surrender is a way to terminate the policy, and the company will refund the entire cash value after deducting surrender fees.
- Long-term care benefits come under the accelerated death benefit. The benefit uses a portion of the death benefit that varies with the company.
Statistics suggest that 40 million people in America alone are facing chronic illness. Also, actuaries indicate that this number increase in the future. Therefore, living benefits are essential, and individuals will need help with healthcare services, travel costs, and lost income.
There are several terms and condition that can allow you to avail of living benefits. In most cases, insurance companies require a diagnosis report, and it must fulfil the requirements to qualify for the benefit.
What Is Better: Term-life Insurance or Cash Value Insurance?
The advantages of accelerated death benefits are the same for both types. However, if you want a policy with a cash value component, it’s better to go for cash value insurance. However, you should know that cost of cash value insurance is high, and if affordability is a problem, you should go with term life insurance.
With term life insurance, you have the benefit of converting policies to cash value. Therefore, you can change policies according to your needs. Nonetheless, both policies will provide you with living benefits.
The pros of term-life insurance include no charge for the accelerated death benefit. Moreover, the premium return benefit ensures a tax-free lumpsum amount for the policyholder. However, the cons are that accelerated death benefits may be taxable.
On the other hand, the pros of cash value insurance include that cash value grows over time, and you can access it in several ways. However, the cons are that the surrender policy will include a charge, and withdrawal can potentially reduce your death benefit.