Living Benefits Riders

Long-Term Care Rider

A long-term care (LTC) rider lets policyowners tap into their permanent life insurance policy to help cover the costs of long-term medical care. Like the accelerated benefits provision, the LTC rider allows a portion of the policy's face amount to be paid out in qualifying circumstances. Unlike the accelerated benefits provision, the LTC benefit does not require the insured to suffer a terminal illness or catastrophic injury to qualify for accelerated benefits. LTC rider benefits become payable if the insured requires long-term care and meets certain conditions. Whereas the accelerated benefits provision is included at no charge in most policies today, the LTC benefit is available only as a rider that may require an additional premium. LTC rider benefits are similar to those of a long-term care insurance policy. Both provide money to pay for a range of medical and social service expenses at various levels of care, from nursing home care to home health care, adult day care, hospice care, and more.

Effect of Accelerated Benefit on Policy's Death Benefit

Accelerated life insurance benefits are typically limited to something less than the full death benefit. While 50 percent of the death benefit is a common limit, some policies provide up to 75 percent. There is no prohibition against insurers providing access to the full death benefit, though this is uncommon. Upon the insured's death, the insurer pays the remaining death benefit to the beneficiary. Some companies also deduct an interest charge from the death proceeds to compensate for interest lost due to the accelerated payment. Example If accelerated benefits have been paid from a life insurance policy, the beneficiary is paid the net death benefit upon the insured's death. Elliott is the policyowner and insured of a $250,000 permanent life insurance policy. When diagnosed with terminal cancer, he exercised his policy's accelerated benefits provision by requesting—and receiving—$100,000 (which was less than the maximum 50 percent permitted by the policy). He could use that money any way he chose. When Elliott died 18 months later, his beneficiary was paid a net death benefit of $150,000. In this example, the insurer did not deduct a charge for interest lost by paying out the accelerated benefit, though insurers are permitted to do so.

Accelerated Benefits Riders

At one time, insureds suffering a terminal illness could access money from their life insurance policy only through a cash value loan, withdrawal, or policy surrender. These options involve loan interest and surrender charges that diminish the net amount and are usually insufficient in meeting the insured's needs. Accelerated benefits riders were created to address these needs. Originally available only through a rider, accelerated benefits are now available either through a rider or as a standard provision in the policy. In either case, the benefit is generally provided at no charge. An accelerated benefits rider (or provision, if built into the policy) allows a payout of some portion of the policy's death benefit while the insured is still living. The typical provision allows up to 50 percent of the death benefit to be available, though some policies allow more. Though intended to help cover living and medical care expenses, these funds can be used for any purpose.

Effect of the LTC Rider on the Policy's Death Benefit

How a LTC rider impacts a policy's death benefit depends on which rider option the policyowner selects. Insurers offer two options: integrated option—Like the accelerated benefits provision, this option draws LTC benefits from the life insurance policy's face amount:While policies vary, most permit up to 75 percent of the face amount to be distributed through an LTC rider.The beneficiary receives the net death benefit (i.e., face amount minus LTC payouts).This benefit may be included in the policy at no charge as part of the accelerated benefits provision. generalized (or independent) option—Under this option, LTC rider benefits are separate from the life policy death benefit:Benefits paid to the insured do not affect the life policy's face amount.The beneficiary receives the full death benefit when the insured dies.This rider comes at a higher cost than the integrated option since it provides benefits in addition to the policy's death benefit.

Qualifying for LTC Benefits

LTC rider benefits become payable when the insured is diagnosed as chronically ill, for either a medical or cognitive (mental) reason: If for a medical reason, the insured must be physician-certified as unable to perform at least two activities of daily living (ADLs) for at least 90 days. If for a cognitive reason, the insured must be physician-certified, within the previous 12 months, that his or her health or safety would be at risk without supervision.

Living Benefits Riders

Living benefit riders give policyowners a way to use their life insurance to help cover the costs of terminal illnesses and long-term care. All permanent life insurance policies have so-called "living benefits," referring to a policyowner's right to borrow or withdraw money from the policy's cash value. Living benefit riders take it a step further. They permit the release of some of the policy's death benefit to help pay for care, in amounts far greater than the policy's cash value, while the insured is alive. There are two types of living benefit riders: accelerated benefits rider (or provision) long-term care rider

No Special Exclusions and Restrictions

Most states prohibit insurers from imposing any restrictions or exclusions on accelerated benefits that are not excluded or restricted in the life insurance policy as well. Likewise, most policies stipulate that the accelerated death benefit must be incontestable on the same (if not more favorable) basis as the base policy.

Qualifying for Accelerated Benefits

To qualify for accelerated benefits, an insured must prove that he or she has a: terminal illness or catastrophic injury that results in permanent disability requiring long-term care To be classified as terminally ill, the person must be certified by a doctor as having a condition that can be expected to result in death within 24 months. Once certified as terminally ill or critically injured, the insured may be permitted to choose whether he or she wants to receive the payout as either: a lump sum monthly payments over a set time period