Life insurance policies are more than just a death benefit; they can offer vital financial protection during life’s challenging times. Some life insurance policies incorporate ‘living benefits,’ which can provide the policyholder financial assistance if they are diagnosed with a serious illness. This article will provide a detailed understanding of three critical living benefits: critical illness, chronic illness, and terminal illness riders.
A critical illness rider is an optional add-on to a life insurance policy that offers the insured a lump-sum benefit if they are diagnosed with a critical illness, as defined by the policy. Common conditions typically covered include heart attack, stroke, cancer, kidney failure, major organ transplant, and ALS, among others.
Upon diagnosis of a qualifying illness, the rider allows the policyholder to receive a portion of their death benefit in advance. This upfront benefit can help pay for medical expenses, loss of income, or other costs related to the illness. It’s crucial to understand that any benefit received under a critical illness rider will reduce the death benefit payable to the beneficiaries.
A chronic illness rider, also known as a long-term care rider, provides a benefit if the insured is unable to perform at least two of the six “activities of daily living” (ADLs) – bathing, dressing, eating, transferring, toileting, and continence – or suffers severe cognitive impairment for a certain period.
Unlike a critical illness rider, which usually pays out in a lump sum, a chronic illness rider provides a monthly benefit to assist with the costs associated with long-term care. This could include hiring a caregiver, modifying your home for accessibility, or moving into a long-term care facility. As with the critical illness rider, benefits paid out will decrease the death benefit.
A terminal illness rider, often referred to as an accelerated death benefit rider, allows the insured to access a portion of their death benefit if they’re diagnosed with a terminal illness with a limited life expectancy, typically 12 months or less.
This rider provides immediate financial assistance when it’s needed most, helping to cover costs such as medical bills, home health care, and hospice. It also allows the policyholder the opportunity to use the funds for whatever they wish, which could include fulfilling a lifelong dream or creating lasting memories with family.
The terminal illness rider is generally automatically included in most life insurance policies without an additional premium. Like the other riders, the death benefit will be reduced by any amounts paid out under this rider.
These living benefits, when attached to your life insurance policy, provide an added layer of financial security. They allow you and your family to navigate a crisis with less financial stress, preserving your savings and providing peace of mind when you need it most.
As with any financial decision, it’s important to consult with a knowledgeable insurance advisor to fully understand these riders and determine if they are right for you. Each person’s situation is unique, and the best choice will depend on your personal circumstances, health, and financial goals.