Different Types of Living Benefits in Life Insurance

Often when I talk to people and ask them, “What is your understanding of life insurance?” Many of them respond with either “It protects my family when I die” or “I just know that it will benefit my beneficiary and not me”.
These answers are not wrong, but since its inception, life insurance has become more than just protection for your family through its death benefit. It has evolved to include living benefits, giving you early access to a portion of your death benefit while living if you have a qualifying illness. If you want to read more about what living benefits are, read our previous article here!

This article focuses on the two types of living benefits, also known as the accelerated death benefit (ADB), and the different payout method. The ADB allows you to advance a portion of your death benefit when you meet certain criteria and can be categorized into either Built-In or Long-Term Care (LTC) Rider. If you have a need or would like to have the ADB option in your policy, understanding the different categories will help you decide which carriers to consider.
Built-in:
Simply means the ADB is included in the life insurance policy as a free rider. This built-in type allows you to accelerate your death benefit for three types of illness (provided you can provide certification from your doctor):
• Terminal Illness – Illness that cannot be cured; usually resulting in death (i.e., advance heart disease)
• Critical Illness – Severe illness (i.e., heart attack, stroke)
• Chronic Illness – Illness that lasts a long time and can be recurring (i.e., asthma)
While a free rider, a charge may be assessed when you use it for a qualifying illness. With built-in you do not need to provide any receipt and can use it for anything, so long as you can prove your illness with documentation.
Built-in suitability? This free rider is more suited for younger clients and income driven clients, who do not have any health concerns.
Two types of built-in ADB:

 Loan: Living benefits paid out as a loan depends on your policy’s cash value amount. Like any loans, interest on the advance accrues each year.

Some insurance carriers that offer loan type living benefit are:
• Columbus Life
• Global Atlantic

 Discount: The death benefit and the cash value are decreased by the requested ADB amount. With discount, you may get less than what you requested for due to the discount factor that takes into consideration your age, premium class, and current cash value. For example, if you requested to accelerate $100,000 from your $500,000 policy, your death benefit and cash value will proportionally decrease. In addition, what is paid out to you may be less than the requested $100,000 with the discount factor.

Some insurance carriers that offer discount type living benefit are:
• National Life
• North American Life
• American General Life
• Allianz Life
• Symetra Life

Long Term Care (LTC) Rider:
The LTC Rider is a paid option for your policy. Unlike the Built-in rider, the LTC rider is mainly focused on chronic illness. Generally, you will need to select the LTC rider at the time of application. Once policy is in-force, you cannot add on the LTC rider, but you may be able to cancel it at any time if you decide you do not need it.
To use this rider, the insured must show that he/she is unable to do at least two Activities of Daily Living for a duration of time (varies by carrier). These include:

• Bathing
• Eating
• Dressing
• Continence
• Toilet
• Transferring

LTC rider Suitability? The LTC rider is suitable for older clients and clients who have chronic illness concerns that may potentially require long-term care such as assisted living or in-home nursing care in the future.
Two types of LTC riders:

 Reimbursement: Basically, means that you pay any illness-related expenses from your own pocket and submit receipts to the insurance carrier for them to pay you back. Note that certain expenses may not be approved, so you should always check with the carrier to see if your expense will be reimbursed.
Some insurance carriers that offer reimbursement type living benefits:
• John Hancock
 Indemnity: Unlike reimbursement, if you can show certified proof of your illness, indemnity LTC rider will pay out a set amount without requiring any receipt. You can use the money for anything you need.
Some insurance carriers that offer indemnity type living benefits are:
• Nationwide
• American General Life
• Symetra Life

Depending on the insurance carrier, the ADB may be built into the policy or as an optional add-on. Some carriers may even offer both options. However, always check with your agent or insurance carrier for availability of the ADB in your state.
Just getting started and don’t know who to ask or where to go? No problem! You can contact TransGlobal to learn more about life insurance with accelerated death benefit and more. We offer a wealth of financial services and are here to help you and your family plan for a better future!