Life insurance has a lump sum death benefit, but if serious illness strikes, a portion of it can be raided to provide living benefits.
Breaking Open The Piggy Bank
It’s called an accelerated death benefit. Literally it’s accelerating out part of the death benefit from the policy before dying. Carriers charge a fairly high fee for this benefit. Rules, caps and charges vary.
Most carriers include a terminal illness accelerated death benefit with no up front charge. A handful of carriers offer a chronic illness accelerated benefit for long term care expenses.
Long term care benefit: Cash Versus Reimbursement
Most LTC insurance are reimbursement plans with a daily or monthly maximum benefit. Reimbursement is only for qualified LTC expenses. That’s a problem especially with home health care, the majority done by the spouse or one of the children. Expenses associated with LTC vary depending on the the need, and may or may not be covered under a traditional LTC reimbursement plan.
Those types of limitations is why North American’s chronic illness benefit is so valuable and versitile. It’s a cash benefit. You can accelerate up to 24% per year, and you can spend that money any way you please. Granted the “discount fee” for cash acceleration is fairly large; the rule of thumb is a percentage the correlates with age. At age 75, the discount fee is about 25%, at age 80 it’s about 20%. But still that adds up to a significant amount of money depending on the size of the policy.
Return of Premium
For those who want an money back opt-out option, Lincoln, Genworth and State Life offer life insurance/LTC coverage with return of premium. Change your mind or an unexpected need comes up, you can terminate your coverage and get every dime of premium back.
What’s great about about this life insurance piggy bank, if no need for LTC arises, the beneficiaries get the full death benefit intact.
Images source: Wikipedia Commons