This post comes from one of our sponsors, Bob Deighton from Deighton Financial. Bob is actually the guy who I bought my life and disability insurance from. So, like all my sponsors, I can personally vouch for him. Here, he is discussing a specific rider for life insurance policies, called the accelerated benefit rider.
Bob is very passionate about this as it’s actually something that helped him and his family very much when his mother was ill.
Take it away Bob!
What is an Accelerated Benefit Rider?
An Accelerated Benefit Rider is an exciting feature offered on some term life insurance policies. Most people who own or are shopping for life insurance are completely unaware of these benefits and how they vary from company to company.
In general, there are three types of accelerated benefit riders available on life insurance:
- Terminal Illness Rider
- Critical Illness Rider
- Chronic illness Rider
These riders are also called “Living Benefit Riders.”
This is because the insured can collect money against the death benefit under certain circumstances while they are living.
Terminal Illness Rider
The Terminal Illness Rider is offered on most life insurance policies written in the past 20 years.
This rider allows the insured to access the death benefit while they are living, if they are diagnosed with a condition with a short life expectancy.
The definition of “terminal” can vary from company to company also. Some companies use 6 months, most use 12 months, and a few companies use 24 months to live as their definition of “terminal”.
A longer life expectancy allowed on the policy increases the chance that this rider will be beneficial to the policy holder
If you qualify for and use this rider, the net payout will be 80% to 90% of the amount you accelerate. For example, if you accelerate $100,000 of your death benefit, you will receive between $80,000 and $90,000 tax-free. Then, you can do whatever you want with this money.
There have been people who have used this rider and lived another 10 or 15 years. And they never had to pay the money back to the insurance company. In most cases, their premiums were waived or adjusted to cover the remaining amount of coverage on the policy.
Critical Illness Rider
A newer (and less common) version of this kind of rider is a Critical Illness Rider.
This benefit allows the insured to accelerate the face amount of the policy if diagnosed with a heart attack, stroke, or cancer, or if they need an organ transplant.
The fact that there does not have to be a short life expectancy makes this benefit much more accessible to policy holders. The net amount payable will be determined by the severity of the condition. And again, it is paid tax free to the policyholder.
Let’s say you have a term life policy for $2,000,000 with a critical illness rider. You may be able to accelerate up to $1,000,000 of death benefit for a diagnosis of a critical illness. For a severe critical illness, the payout on $1,000,000 acceleration on the policy could be as high as $850,000.
For a moderate critical illness, the expected payout could be up to $550,000. The amount of money accelerated from the policy deducts from the death benefit if the insured dies. The premium then adjusts to reflect the cost of the remaining coverage.
There have been cases where the insured person was able to use accelerated money from their life insurance policy to get a life-saving treatment or procedure that wasn’t covered by health insurance
Riders like this can add real value to your policy as it increases the chances that you can collect money while you are living.
This can also improve your quality of life. And it allows you to enjoy the things that money can buy, like a year off from work or time with your family. Even if you have disability insurance, having some of this kind of coverage makes sense. That’s because there are circumstances where you can collect on a benefit like this but not qualify for disability insurance benefits.
Chronic Illness Rider
The third accelerated benefit rider is the Chronic Illness Rider.
This benefit is similar to long term care insurance, as the benefit triggers are the same:
- Inability to perform 2 of 6 activities of daily living (bathing, continence, dressing, eating, toileting, or transferring) or
- Severe cognitive impairment due an illness or injury.
If you have a $2,000,000 life insurance policy, you may be able to accelerate up to 24% of the death benefit per year or $480,000 per year from the face amount.
The net payout on a severe chronic illness could be $425,000 per year, or $250,000 a year for a moderate chronic illness. Any amounts accelerated deduct from the death benefit. However, this rider can mean the difference between being able to afford care or going broke.
Health insurance doesn’t cover this kind of care after 60 days. So, many people have found themselves having to rely on family or Medicaid to cover their medical bills. To qualify for Medicaid, you would have to spend down almost all your assets. Also, what if you get better and start making money? Medicaid can go after any new assets or income in the future as back-payment.
Fitting an accelerated benefit rider with your term life insurance
The reason term life insurance is inexpensive in relation to the death benefit is because few people die during the term.
Let’s say you add the chances of experiencing a critical or chronic illness. Then, buying a policy with these riders can greatly increase the chances of being able to collect some money while you are living.
Utilizing this rider may save your life. It may also allow you to spend more time with your loved ones while you are living. Money doesn’t solve all problems. But, when it comes to your quality of life and your finances, it can make a positive impact.
Which companies have offer an accelerated benefit rider?
There are only a handful of companies that offer term life insurance with all three accelerated benefit riders. In most cases the premiums are not that much more than term policies that don’t include the riders.
For example, a $2,000,000 30-year term policy on a 35-year-old male without the critical and chronic illness riders costs about $1420 a year for one of the lowest priced term policies available.
The cost for a 30-year term plan with the riders is $1485 a year or $65 more per year.
For $65 a year, this policyholder has the option to use the critical illness or chronic illness rider and collect between $550,000 and $850,000 for a moderate to severe critical illness, or $250,000 to $425,000 per year for chronic illness on a $2,000,000 term policy.
Buying this kind of coverage separately from a life insurance policy could cost over $2,500 per year in premiums for a 35-year-old on just $100,000 of critical illness coverage and $350,000 of long-term care insurance.
Owning a life insurance policy with these riders is like having three policies in one.
You have the life insurance risk, critical illness risk, and chronic illness or long-term care risk.
We have had several clients who were able to use these riders on their policies. It made a huge difference for them and their families.
A tool for you to use
Our company, Deighton Financial Services, has set up a website dedicated to educating our clients on how these riders work and whether they will be a good fit for your financial plan.
Click here, Accelerated Benefit Riders and Quotes, to watch our educational video.
You can then read up some more on this benefit or request a free quote.
My take
I actually don’t have an accelerated benefit rider on my term life insurance policy. Mostly this is because I did not have a company that would offer me one for various pre-existing health conditions.
But it’s certainly something I would have considered if I got my term life insurance earlier…when I should have.
So, if you are looking for life insurance, consider if an accelerated benefit rider could be worth it for you.
If you would like to reach Bob and his team, check out our Recommended page.
What do you think? Do you have term life insurance? Do you have an accelerated benefit rider?
