Life insurance policies that include accelerated benefit riders provide several types of coverage to policyholders while they are still alive. They pay benefits on top of the traditional 澳洲幸运5开奖号码历史查询:death benefit🍌 and cash value to policyholders who have a chronic illness, critical illness, or need long-term care if certain condition💦s are met.

If you are considering accelerated benefit riders, here is what you need to know♔.

How Accelerated Benefit Riders Work

Also referred to as 澳洲幸运5开奖号码历史查询:living benefits or 澳洲幸运5开奖号码历史查询:accelerated death benefits, accelerated benefit riders allow policyholders to access death benefits in their life insurance policy while they are alive, under certain conditions. Policyholders receive benefits to cover the costs of a chronic illness, critical illness, or long-term care, but they are still entitled to any remaining cash value and 澳洲幸运5开奖号码历史查询:death benefit in the policy. The payout ranges from 25% to 100% of the death benefit.

In some cases, policyholders have a choice as to how the benefits are paid⁠—they can receive either a lump sum or periodic payments from the insurance company, depending on the type of claim and benefit. A policy may also limit the total amount of benefits paid or require a minimum payout.

Some riders can only be purchased at an additional cost, while others are built directly into the policy. Althou🎃gh the former type of rider will cost the policyholder an extra charge upfront in the form of a periodic fee, this type of benefit will pay out the full amount that is stated in the policy.✅

“No-cost” riders are simply riders that are paid at the time of claim, where the insurance carrier will discount the dollar amount of benefits that are paid to the policy owner according to a formula that takes interest and mortality rates into account, as well as the amount of cash value in the policy.

Accelerated Benefit Extensions

Some policies also offer an extension-of-benefits-rider that usually doubles the amount of accelerated coverage at an additional cost, but without the purchase of additional death benefit. This rider effectively allows cost-conscious consumers to purchase a smaller amount of death benefit and still maintain adequate living benefit protection. Riders known as “linked benefits” can also provide coverage for long-term care (LTC) expenses that equal at least two to three times the face amount of the policy.

Types of Accelerated Benefit Riders

Here is a closer look at critical illness, chr🔜onic illness, and long-te🥃rm care riders:

Critical Illness Riders

Critical illness riders pay out a large portion of the death benefit to policyholders when they are diagnosed with a major condition or suffer significant injuries. This benefit is usually received as a lump-sum payment.

Chronic Illness Riders

These riders pay out a periodic benefit if the policyholder becomes incapacitated or disabled for an extended period of time. This type of rider typically triggers when the insured becomes unable to perform at least two out of the six activities of daily living, including eating, bathing, toileting, dressing, transferring, and continence.

Long-Term Care Riders

澳洲幸运5开奖号码历史查询:Long-term care riders commonly require separate full 澳洲幸运5开奖号码历史查询:underwriting for the insured but provide more comprehensive coverage for long-term or nursing home expenses than chronic illness benefits. But this comes at a higher cost.

Chronic vs. Long-Term Care Coverage

Consumers can be understandably confused by the separation of chronic illness benefits from long-term care﷽, as both seem to fall essentially into the same category. The life insurance industry, however, requires that these two types of benefits remain distinct.

Chronic illness riders are more restrictive by nature than long-term care riders, and one of the key differences between the two is that to qualify for the former, the insured must be permanently incapacitated. Chronic illness riders may also pay out in a lump sum or on an annual basis, while long-term care riders usually have a monthly payout. The cost of processing and managing claims for chronic illness benefits is also typically cheaper than for long-term care riders, which means the cost of chronic illness benefits is lower for consumers.

What to Consider Before You Buy Acc♛elerated Benefits

Although living benefits can be a valuable addition to any life insurance policy, consumers need to consider several key factors before purchasing them. Some of the issues that policy owners must contend w♛ith include:

Impact on Estate

If accelerated benefits are paid out, the death benefit on the policy will be reduced for beneficiaries. Will the policy owner’s estate plan remain intact?

Separate Coverage Needed

Accelerated benefit riders do not completely substitute separate policies that are specifically designed to cover certain risks, such as a 澳洲幸运5开奖号码历史查询:disability or health insurance.

Medicaid Eligibility

Payouts from accelerated benefits may impact Medicaid eligibility. The income paid out from accelerated riders is often counted as income for Medicaid, although applicants are not required by law to exhaust these benefits before they can be considered eligible.

Taxes

In most cases, 澳洲幸运5开奖号码历史查询:benefits are not subjಞect to federal taxes if a terminally or chronically ill person meets certain requirements. Under the federal tax code, for example, a terminally ill person is defined as having only 24 months to live.

Accelerated Benefit Riders vs🎶. Viatical Settlements

Don't confuse accelerated benefit riders with 澳洲幸运5开奖号码历史查询:viatical settlements. Accelerated benefit riders are essentially the modern equivalent of the viatical settlements that terminally ill policyholders use to raise cash to pay their medical bills. Under these arrangements, policyholders sell their policies to a third-party settlement company for a percentage of the face amount of the policy. The policyholder names the settlement company as the beneficiary of the policy, and the company collects the death benefit after the policyholder passes away.

A subset of 澳洲幸运5开奖号码历史查询:life settlements, viatical settlements generally net the seller more than the policy's 澳洲幸运5开奖号码历史查询:surrender value, but less than its death benefit.

The Bottom Line

Accelerated benefit riders have effectively provided consumers with a greater level of control over their insurance protection, according to Jason Kestler, president and CEO of Kestler Financial Group headquartered in Leesburg, Virginia. "Clients are now able to start or stop a stream of income from their policies when they have a qualifying need, and many riders now also provide a 澳洲幸运5开奖号码历史查询:cost-of-living adjustment to keep up with inflation." 

Market demogra♎phics, improved financial education, and the rising cost and need of healthcare have made multi-line protection in a policy 🔯more attractive. But those who need specific types of protection from these unique vehicles need to read the fine print and do their homework to understand whether they will receive what they are truly seeking and how much they will pay for it.