Living benefits: using life insurance before you die
Accelerated death benefit riders for terminal, chronic and critical illness, what they actually pay, and what they cost.
Most life insurance sold today includes at least one rider that lets you access part of the death benefit while you are alive. These are called living benefits or accelerated death benefits, and they are one of the genuinely good developments in this business over the last twenty years.
The three common triggers
- Terminal illness: a physician certifies a life expectancy usually of 12 or 24 months. This rider is included at no extra premium on most policies
- Chronic illness: you cannot perform two of six activities of daily living, or you have a severe cognitive impairment. This is the one that helps with long term care costs
- Critical illness: a defined list of events such as heart attack, stroke, cancer diagnosis or organ failure
What they pay
You receive an advance on your own death benefit, not extra money. If you accelerate 100,000 dollars from a 250,000 dollar policy, your family receives roughly the remainder when you die. Carriers also apply a discount to reflect the early payment, so accelerating 100,000 dollars of benefit does not always put 100,000 dollars in your hand. Ask for the specific formula before you count on a number.
Why the chronic illness rider matters here
Long term care is expensive and most families in South Texas absorb it informally, with an adult child cutting hours or leaving a job. A chronic illness rider does not solve that, but it can put real money in reach at the moment the household income drops, without selling a house.
What to check on your policy
- Is the rider included or does it add premium?
- Is it available on term as well as permanent coverage, since many carriers now include it on term
- What is the maximum you can accelerate, as a percentage and a dollar cap?
- How is the discount calculated?
- Does using it affect Medicaid eligibility, which is worth asking before you accelerate a large amount
One caution
Living benefits are a good reason to choose one policy over another at the same price. They are not a reason to buy a smaller policy than your family needs. The core job is still replacing your income.
Check your existing policy
Bring your policy in and we will read the riders with you. Plenty of people already own these and do not know it. Call (956) 687-3334. Se habla español.
Common follow-up questions
Do I have to pay the money back?
No. It is an advance against your own death benefit, and it reduces what your beneficiary receives.
Is the money taxable?
Terminal illness accelerations are generally not taxable under federal rules, and chronic illness benefits can be treated favorably too. Confirm with a tax professional for your situation.
Can I add a rider to a policy I already own?
Usually not after issue. Riders are selected at application, which is why comparing them before you buy matters.
Want this looked at properly?
We are an independent agency in McAllen serving Hidalgo, Cameron and Starr counties. No cost to talk it through.
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