Posts filed under 'accelerated death benefit'
There’s probably none of us who haven’t known someone whose family has gone through a terminal illness of a family member. The anticipation of the loss, the battling against the inevitability of the loss, the tremendous expense and strain of the process and ultimately the death take a huge toll on the family. In the very best of situations, it’s a bad deal.
It’s a great thing and a comfort when there is life insurance in place that will help the family deal with the financial part of the loss and get back on their feet. Quite often, especially with an extended terminal illness, medical bills pile up and the only hope is that the life insurance will come through to pay it. Now, with most new policies there is an automatically included rider that offers help when it is first needed, prior to the death.
An accelerated death benefit rider will allow the owner to receive, in most cases, up to half of the death benefit once a person has been diagnosed as terminally ill. Terminally ill is generally defined as a prognosis of less than 12 months to live. Attached is a sample rider from an American General Life term insurance policy.
accelerated-death-benefit-rider
Generally this benefit is used for staying current with medical bills and loss of income if the insured is no longer working, but the nice thing is that the insurance company doesn’t put any restrictions on how it’s used. I see one of the great uses as the ability of a spouse to take time off to stay at home and take care of a dying mate. That may sound a little morbid to some, but for anyone who has helped with hospice for a loved one, I can’t think of a greater gift to a dying spouse.
It might mean the money to move someplace more comfortable. It might mean an outrageous family vacation, a memory that will last forever especially for children, as that last great time they had with their mom or dad.
Bottom line. No matter how the accelerated benefit is used, it is a blessing that is built right into most life insurance policies. If you read through your policy and can’t find where it says the rider is included, you may want to consider applying for a new policy that does include it. The rider doesn’t cost anything so, with prices still declining in many instances, you may be able to add the benefit and lower your cost.
May 29th, 2008
I was recently contacted by a stay at home mom who was, putting it politely, a little annoyed because she was told by an insurance agent that she could only be approved for 1/2 as much life insurance as her husband was carrying.
I explained to her that, in fact, that was the stance with the majority of companies and any exception to that would have to be well thought out and presented if she expected approval. I did let her know that it was not mission impossible, but just not one of those things you can throw against the wall and assume it will stick.
A couple of points that are important to consider. This rule has been around since before mothers really had a choice of having a significant career out side the home. So it is definitely old school thinking. But just for a minute let’s revisit the old school.
I remember questioning an underwriter about this very issue in 1978. Whether or not he could back up his statement I’ll never know, but what he said was that the industry had mortality statistics that showed a higher mortality rate for stay at home moms if they had life insurance equal to or greater than their husband. He also went on to explain that the reason they limited the amount of life insurance on children was, at that time, they had statistics that showed a higher mortality rate in children with life insurance in force on their lives that was significantly higher than what was needed for final expenses.
Again, I have no idea if that was true, or if that’s just what old underwriters told young agents to get us to drop the subject. But, fast forward to today when, in most instances, being a stay at home mom is a choice and the other choice is being a second breadwinner.
So, one half of the husband’s income was based on nothing more than, I suspect, a little paranoia with some skewed statistics. Today I would propose that the amount of insurance available to a stay at home mother should be based either on the amount of income she could be making, or the replacement cost of her stay at home services.
If we were talking salary replacement for the age group that most stay at home moms would fall into, they would be eligible for enough insurance to replace about 20 times their annual income, or if you use my supposition above, 20 times their annual replacement cost. Using the $116,000 from the article that means that an acceptable amount of insurance would be over $2,000,000.
I’m not hearing a lot of women clamoring for that much insurance, but hello!!!, this is 2008 and for a woman to carry as much as a husband is really just prudent family planning. Another plus to this whole idea is that most life insurance now has an accelerated benefit rider that allows a terminally ill insured person to take up to one half of the benefit while still alive. How good would that be if the money was available for the husband to take off and take care of his dying spouse and take the burden of the children off of her. With this type of rider the balance of the death benefit is paid out at the time of death. Time for companies to rethink that rule.
Bottom line. Life insurance is all about lifting the financial burden of a loss of the back of the surviving family members. I suspect that any underwriter who still believes that the old rule applies has never talked to a widowed father with children.
May 21st, 2008
Most life insurance policies issued in the past 5-10 years have a rider called the accelerated death benefit rider. It doesn’t cost anything and it allows the insured to receive, depending on the company, up to half of the death benefit (usually up to a limit like $500,000) if they are terminally ill.
I’ve had clients question why they would want this rider. If you’ve never had a terminally ill relative, it might seem kind of foreign to think about the last year of someone’s life when you know that they aren’t going to survive.
The primary reason we buy life insurance is to take the burden of loss off of our beneficiaries. In the case of terminal illness, that burden can begin to take its’ toll months before someone’s death in the form of lost wages because they are too sick to work or huge medical bills if you are among the 50 million uninsured or underinsured people in our country. With the accelerated benefit it allows you to meet that burden as it comes and not after it has already crushed the family finances.
Bottom line. Before you take exception to the idea of an accelerated benefit, talk to your agent and make sure you understand what it can do for your family at a time when extra hardship and burdens are least needed.
March 11th, 2008
Terminal illness! How many times a day is a person told, or a family told that a person only has months to live? Often this news comes after a stroke that requires extensive medical care in ICU, or after a long battle with cancer. Medical bills pile up and, because the person is usually no longer able to work, the family is short of money due to the lack of income. There isn’t any part of terminal illness that cuts a family slack.
Several years ago life insurance companies started adding an accelerated death benefit to life insurance policies. This was in response to a practice that began early in the AIDS epidemic. The epidemic spawned a business of “helping” the victims out by offering to purchase their life insurance policy for a reduced amount. This gave them the cash they needed to keep up with medical bills and continue treatment. These helpful business people would usually offer one half of the death benefit in cash in return for ownership of the person’s policy. The business idea was of course that upon that person’s death, the full death benefit was collected and the profit was taken.
The downside to this of course is that it robbed many families of the full amount of life insurance that the person had been paying for all those years. The bills might have been paid, but there wasn’t anything left over to help the family move on.
With the accelerated death benefit the insurance company offers the same relief from the bills, often allowing someone to take as much as half of the death benefit when they find out they are terminally ill. The difference is that the policy stays intact and upon the death of the individual, the balance of the policy is paid to the beneficiary.
Check your life insurance policy and make sure your policy has this rider. If you’re not sure, enlist the help of an independent agent to review it. It may be possible to get the rider added to your policy, and if not, it may be prudent to replace your current policy with a new policy that has the benefit available.
May 26th, 2007
In response to a less than reputable business practice, life insurance companies now offer at no additional charge a feature called an accelerated death benefit.
It wasn’t that long ago that there was a prolific market in praying on the terminally ill and especially those whose families were suffering not only the loss of a loved one, but a financial disaster with loss of income and medical bills. Along would come these less than reputable business people (we’ll call them pigs), who would be willing to pay you half of the value of your life insurance policy in exchange for ownership of the policy. A lot of people went for that usually because the terminally ill insured person didn’t want to see the family suffer financially. So, the pig would bail them out and take over ownership of the policy and keep it in force until the insured’s death, netting a 100% profit when they received the full death benefit.
Now, whether you have term insurance, whole life or universal life, the insurance companies have put the pig out of business. If you are terminally ill and have an accelerated death benefit rider, you are allowed to take a portion of your death benefit from the company (usually 50% or more) to use before your death. Consult your independent life insurance agent to make sure your policy has the rider. With the rider the policy remains under your ownership and upon your death the unused balance goes to your beneficiaries.
March 15th, 2007
It’s all over financial news sources. And it’s true. Not often news and truth are in the same corner, but here you go. Due to updated mortality tables and good old competition, the rates, primarily in the healthiest rate classes have been coming steadily down for the past 10 years or so.
Take for example a 51 year old guy in excellent health. 10 years ago he bought a policy from a competitive company at their best rates. He purchased a $500,000, 20 year level term. He has 10 years left on the guaranteed rate of $730 a year, so having heard the rumor he decided to get a life insurance quote on a new $500,000, 10 year term. That would give him an apples to apples comparison with what he had left. The new policy will be $620 a year. So, he can switch to a new policy and save $110 a year for the balance of his 20 years that he wanted to insure.
A further comparison was to drop 10 years back off of his age and see, if he were 41 again today, what his original 20 year term would cost. Try $400 a year. Have term insurance rates really come down? Yes!!!!!!!!!!!!
If you’ve had a term insurance policy for 5-10 years and your health is still good, you’re just crazy not to contact an independent life insurance agent and shop it.
The newer policy may even have built in features at no extra cost like the accelerated death benefit. That allows you, if you are terminally ill, to take a percentage of the proceeds before you die to help pay bills or whatever you need it for. The balance is held for your beneficiaries to receive upon your death. A lot of older policies don’t have these features.
Lower cost! Better benefits! It’s real and it’s worth checking out.
March 3rd, 2007
I’ve often wished my blogs would be read by everyone. I’m pretty sure that doesn’t happen, but for this one I am lowering my wish expectations. I am only hoping that everyone who has life insurance or is considering buying a life insurance policy will listen up.
If you have a term insurance policy, or for that matter, universal life or whole life, pull it out (if you can find it), dust it off, and read it. The following stats aren’t based on any kind of scientific survey. I wouldn’t even know how to do one, but based on what I hear from my new customers, most don’t remember what they have for life insurance. That is to say that only about half even remember the amount of insurance and substantially more than that can’t remember how long the life insurance policy is guaranteed to have level premiums. And, while not a large percentage, many can’t remember where their policy is. That makes it kind of unlikely that their family will know where the policy is, or even if one existed, should they pass away unexpectedly.
The number one reason that these problems exist, is the lack of a good, preferably independent life insurance agent that worked with you from the time you got your life insurance quote to now. A good agent is going to educate their client on what they have at the time of sale. A good agent will make sure the client understands all of the guarantees in a policy from the level premium, the conversion options and the accelerated death benefit provision. A good agent is going to instruct a client on what to do with the policy and who to inform about the life insurance, so that in the event of a death, the family knows what you have and who to call. A good agent is going to stay in touch and keep reminding their client about the benefits they purchased and keep them informed of any changes that might be prudent.
Test yourself. Without looking, write down the amounts and term lengths of any insurance policies you have. Write down your best guess as to how many years are left before the life insurance rates go up. Write down the beneficary designations just as you remember them. Ask your spouse, family, or business partner if they know what you have and who to call if you were to die. Now check it against reality, provided you can find the policies.
When you read your policies, if there is anything you don’t understand, call the agent who sold it to you (if they are still in business) and insist on education and clarification. If they happen to not be in business anymore, go onliine or look through your phone book and find an independent agent who can help you understand what you have. Whover said “ignorance is bliss” obviously wasn’t dependent on life insurance benefits.
Test yourself today. Waiting is an option that could severely damage your family’s future.
February 18th, 2007
