If a policyholder is diagnosed with a terminal illness, life insurance living benefits, also known as accelerated death benefit riders, permit them to withdraw a portion of their funds prior to death. Some life insurance policies automatically include living benefits, while others are riders that come with an additional premium. Living benefits can be used to pay for end-of-life care but reduces the amount available to beneficiaries after death.
Can Life Insurance Living Benefits Be Used to Cover Medical Expenses?
Living benefits, or similar riders, allow policyholders to withdraw up to 80% of the cash value of their life insurance policy to pay for medical expenses related to end-of-life care. Usually, these include hospice or home nursing care.
Not all living benefits are created equal. Policyholders should carefully examine their documents to see what benefits they may be entitled to. Common living benefit riders include:
- Chronic Illness Rider — This offers access to benefits if a medically diagnosed condition affects at least two of the six defined activities of daily living. This can commonly qualify someone to use their living benefits to pay for a nursing home.
- Terminal Illness Rider — Frequently included with life insurance policies, this rider allows policyholders to access funds if they’re diagnosed with a terminal illness.
- Critical Illness Rider — This occasionally allows seniors to access benefits for conditions associated with a shortened lifespan and high medical costs, such as cancer, ALS and stroke.
- Long-Term Care Rider — The most expensive living benefits rider, a long-term care rider, allows the benefit to be placed towards long-term care only if the policyholder can no longer perform at least two of the six daily activities stipulated in the policy.
While each of these riders has its own merit, it’s essential to remember that most life insurance policies charge more for riders. Therefore, the extra costs of a high premium need to be weighed against the likelihood of end-of-life expenses and care. In addition, if a policy is disbursed early, the beneficiary will receive a reduced amount upon death of their loved one, which should be considered carefully by seniors.
Is It Important to Name a Beneficiary For Living Benefits?
If a senior doesn’t have a beneficiary for their life insurance living benefits, then they can have their benefits applied to their estate. Debt collectors or medical facilities can then file a claim against the estate, including life insurance proceeds, to recoup their funds. If the senior does have a beneficiary, then it’s important that person be named in the policy or they may not receive the life insurance benefits they need once their loved one has passed.
