Life insurance that pays while you are living
Every time I sit down with a client and the subject of life insurance comes up. There tends to be a few moments of silence and awkwardness. Most people do not like to talk about life it is the ultimate bet against yourself. What if you could find life insurance that pays you while you are living? Imagine you buy a 30 year term policy and some type of medical emergency arises and you could draw from this term policy to pay for something like long term care? All of a sudden life insurance is becomes a practical financial tool. We are not talking about a permanent policy with “Cash Value”. These are the more simplified term life products now on the market.
Life insurance that pays you while you are living
Lets take a look at one of these types of programs. Transamerica has their Trendsetter with Living Benefits program. So lets say you purchase a $500,000 30 year term policy. Somewhere down the road you are diagnosed with critical illness. You would now be eligible to use your life policy up to 90% of the death benefit to cover medical expenses. At some point when you pass away the remainder of the death benefit would go to your beneficiaries. This is truly a life insurance policy that pays you while you are living. Amazing how much freedom this would give an individual. You no longer have to look at a term life insurance policy like as something you just hope you out live.
What are the chances I will need to use the living benefits in my life insurance policy?
The American Association of Long Term Care estimates that 50% of our citizens above 60 will need some type of long term care before they die. The average time needed for long term care is about 3 yrs. In general the average cost of long term care can run between $50,000 -90,000 per year. Essentially a life insurance policy with living benefits can somewhat alleviate the decision to carry an additional long term care policy.
Lets look at 3 of your typical living benefits within a policy
Terminal Illness Accelerated Death Benefit – Allows the policy owner to use his or her death benefit when determined by a physician to have less than a 12 month life expectancy. They could accelerate up to 100% of the face value of the policy or max out at $500,000.
Chronic Illness Accelerated Death Benefits – Allows the policyholder to use up to 24% of the death benefit each year when he or she is unable to perform 2 of the 6 activities of daily living (bathing, continence, eating, dressing, toileting and transferring) for a period of 90 days. There could also be a severe cognitive impairment for a period of 90+ days. The policy owner could use up to 90% of the face value of the policy or max out at $500,000.
Critical Illness Accelerated Death Benefits – Allows the policy owner might accelerate his or her death benefit when determined by a doctor to have suffered a critical health condition. such as (cancer, heart attack, stroke, a major organ transplant, end stage renal failure, ALS, blindness or paralysis ). The policy owner can use up to 90% of the face value of the policy or max out at $500,000.
Does Life Insurance that pays you while you are living cost more?
Life insurance that pays you while you are living cost more than your simple term policy? Always a good question, so lets look at some numbers. At the time of writing this post I am a 49 year old male in decent health and does not smoke.I will use a 20 year term policy with a $500,000 death benefit. I will compare to the Transamerica Living Benefit program to other term life programs
My findings are as follows
- Transamerica Living Benefits $98/month
- Transamerica w/o Living Benefits $88/month
- American General w/o Living Benefits $87/ month
- Lincoln Life w/o Living Benefits $87/ month
- Met Life w/o Living Benefits $91/ month
So as you can see you can probably expect to pay about $10.000 more per month with some of the better priced insurance carriers. But even looking at some of the bigger names in the insurance industry there basic term life was more expensive.
- Prudential $99/ month
- Nationwide $107/ month
- John Hancock $110/ month
Bottom line at least concerning Transamerica the program is very competitively priced. When looking for a term life insurance policy I would hope any client would weigh in the total benefits vs just the end price? But life insurance strategies are different from individual to individual. All the above insurance rates for $500,000 are for a full medical underwriting policy.
Is there a a program that has living benefits without having to be fully underwritten? YES, in fact the Transamerica product offer what they call their Term Express program. You could qualify for up to $250,000 coverage without having to go through a full medical exam. Is their any benefit to going this route? Lets look at the numbers and I will actually use my wife’s policy as an example.
My wife has Chron’s disease so I have found typically is is easier to qualify under a non medical life policy. She would usually rate as “Standard Health”. She may be table rated with Chrons under normal underwriting, but we will assume a basic standard rate. We did a 20 year term policy $200,000.
- Normal full medical underwriting $47/ month
- Non med term express non-med $73/ month
As you can see there is a difference in pricing on the fully underwritten vs non-med underwritten. In many cases it probably makes sense to go the fully underwritten route with this program. Especially if you are in good health. In general all non-med programs are priced based on a Standard Rating or worse.
Does life insurance that pays you while you are living make sense? If you just look at the benefit alone vs cost I would say unequivocally YES. Life insurance strategies are different for any consumer. But living benefits seem to make sense. You are no longer just betting against yourself to out live the policy. Run the numbers yourself or give us a call at Home Smart Insurance Services to answer any questions.