Planning Ahead: Using Permanent Life Insurance for Future Healthcare Needs

How Do the Living Benefits of Permanent Life Insurance Work?

We all understand the death benefit of a life insurance policy, which provides a financial payout to beneficiaries upon the insured's death. Living benefits refer to the advantages that policyholders can access during the insured's lifetime in specific qualifying events, such as terminal illness or chronic care needs, or the option to access cash value for emergencies to supplement retirement income. In most cases, this is accomplished by adding life insurance riders to a policy; you can enhance coverage by providing essential health benefits and offering financial assistance in the event of serious illness, disability, or long-term care needs. These benefits provide financial protection, ensuring peace of mind during times of need.

• Guaranteed Cash Value Savings: As premiums are paid, a portion accumulates as cash value, which can be accessed through loans. These cash loans can be utilized for emergencies, supplemental income during unfortunate health events, and early retirement needs without incurring an early withdrawal penalty.

• Accelerated Death Benefit Rider: Offer financial relief during critical illness by enabling policyholders to access a portion of their death benefits early. The Rider empowers you to tap into a portion of your life insurance policy's Death Benefit. At the same time, you are alive, as long as you meet specific criteria outlined by the rider and the regulations in your state. In other words, you can receive lump sum advance payments over time against your policy's Death Benefit and enjoy the freedom to use them as you wish.

• Critical Illness Rider: This is an add-on to a life insurance policy that offers a lump-sum payment to the policyholder upon being diagnosed with a covered critical illness while still alive. This payment can help cover medical expenses, lost income, or other needs related to the illness.

• Chronic Illness Rider: Is a feature that can be added to a life insurance policy, providing benefits if the policyholder becomes chronically ill. A chronic illness refers to a condition from which the insured cannot recover and usually requires extensive medical care and assistance with daily living activities.

• Long-term Care Rider: Offer financial support for long-term healthcare needs due to chronic illness, disability, or cognitive impairment. Adding long-term care benefits to your permanent life policy allows you to access the death benefit for long-term care expenses not covered by health insurance. Typically, the death benefit is reduced by the amount used for long-term care services. This is a valuable living benefit, especially given that 70 percent of individuals turning 65 today will need some form of long-term care.

• Disability Waiver of Premium Rider: This living benefit allows you to skip your premium payments if you experience a long-term disability lasting six months or longer. While it is not a direct cash benefit, it remains a valuable option, as there is a 30% chance that you could face a disability preventing you from working for 90 days or more at some point during your career.

Living benefits are a critical component of financial security today. The nature of health benefits insurance is such that it's too costly to acquire them after the fact. A permanent life insurance policy is essential for these health benefits early in life. It's recommended to have a permanent policy in place by the time you turn 40. This does not mean that you shouldn't get a permanent policy after 40; rather, it indicates that 40 or younger is the optimal age for cost and insurability.

Life Insurance Percentage of Market

The following is a detailed overview of how an Accelerated Death Benefit Rider (ADBR) operates. Some insurance companies offer three specific areas of coverage: 1. Specific Medical Conditions (Critical Illness), 2. Chronic Illness, and 3. Terminal Illness.

1. Specified Medical Condition (Critical Illness). The conditions that meet this requirement include:

• AIDS (Acquired Immune Deficiency Syndrome)

• End-Stage Renal Failure

• First Coronary Angioplasty

• First Coronary Artery Bypass

• First Myocardial Infarction

• Life Threatening Cancer

• Major Organ Transplant

• Medical condition requiring permanent, continuous life support

• Stroke

2. Chronic Illness is defined as an individual unable to perform at least two of six Activities of Daily Living (ADLs) without substantial assistance for at least 90 days due to a loss of functional capacity. The six ADLs are routine daily activities considered necessary for a self-sustaining person to remain independent: eating, bathing, continence, dressing, toileting, and transferring (moving in or out of a bed or chair). A Licensed healthcare practitioner must determine that the loss of ability to perform these ADLs is expected to be permanent or requires substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment.

3. Terminal Illness refers to an illness expected to lead to death within one year. Some states define the terminal illness timeframe as two years or less. The qualifying terms and conditions for accessing accelerated benefits vary by state.