When you purchase a life insurance policy, you can include living benefit riders, also known as accelerated benefit riders. There are different types of benefit riders available, but you are allowed to choose more than one for your policy. Some of the options include critical illness, chronic illness, and nursing home care and child protection. Before going into details, we’ll first look into an overview of what living benefits life insurance riders are and whether they are right for you.
What Are Living Benefits Life Insurance Riders?
One way to look at benefits riders is like viatical settlements, which was used in the past by terminally ill policyholders to pay for expensive medical bills. The settlements allowed the policyholder to sell his or her policy to a third party settlement company, who would pay them a portion of the policy’s total amount. The company would then be written down as the beneficiary. This was a process that was oftentimes cumbersome and sometimes didn’t work as planned, so the insurance companies took the initiative to offer policyholders the chance to obtain between 25 and 100 percent of their death benefit, depending on the situation, hence the purpose of the riders. Before, riders could only be added to a whole life insurance or universal life insurance policy, but it can now be used with term life insurance as well.
How the Benefits Are Paid Out
The policyholder is sometimes able to choose how he or she wants to be paid, such as a lump sum or periodic payments. The type of benefit and claim determines the forms of payment are available, but either way, the policyholder is still entitled to the remaining cash value and death benefit that’s on his or her policy. You can either have payment as a reimbursement or on an indemnity basis, where it goes directly to the health care providers or other parties that need to be paid. Some have a minimum dollar payout and/or an absolute dollar limit on the total amount of paid benefits.
Difference Between Additional and No-Cost Riders
Adding riders to your life insurance policy can be done at an additional cost, but there are some that are designed within the policy, making them pretty much free. The additional cost riders are determined upfront when the policyholder’s rider is assessed. This type of rider will have a pre-determined benefit that is paid out in full. The no-cost riders aren’t paid out until the claim is made. The insurer will use a formula to determine the amount to be paid to the policyholder that consists of the interest, mortality rates and cash value of the policy.
Benefits Rider Extensions
At an additional cost, a policyholder can get an extension for benefit riders, which typically doubles the amount of the insurance coverage. There’s no need to purchase additional death benefit to obtain this. Savvy life insurance shoppers can purchase a small death benefit amount, while keeping sufficient living benefit protection. Linked benefits riders can be used for long-term care expenses that are two to three times the amount of the entire policy.
Types of Benefit Riders to Choose From
The living benefits that you can find with most life insurance policies are typically within three categories, critical illness riders, chronic illness riders and long-term care riders. The available riders include the following:
- Accelerated death benefit
- Accidental death and dismemberment
- Child protection
- Critical illness
- Disability income
- Guaranteed insurability
- Long-term care
- Other insured
- Paid-up additions
- Return on premium
- Term conversion
- Term insurance
- Waiver of premium
Purchasing a life insurance policy that has benefits riders can be a great way to protect yourself and your family from high medical expenses. It’ a good idea to look into the different types to determine which ones you’d like to have included with your life insurance policy.