Life Insurance With Living Benefits
Contributing to a life insurance policy does more than provide financial protection for your loved ones after you pass on. Life insurance policy holders may be able to gain benefits of life insurance while they're alive, in the form of living benefits, loans or access to cash value now. Here's how.
Living benefits, sometimes known as "accelerated benefits,"1 are life insurance benefits that may be paid out to some policy holders depending on their current health or life situations. Living benefits enable a portion of the benefits that would be paid out upon death to be paid while the policy holder is still alive.
Certain life insurance policy plans, like the Quality of Life Insurance suite of life insurance policy products, include living benefits at no additional charge. The QoL Accelerated Benefit Riders can pay out an advance on the death benefits to cover care costs, to compensate for missed income or for any other reason if the policy holder suffers a qualifying event that meets specific conditions.
Living benefits are sometimes automatically included in a policy, and sometimes they will need to be added to a policy as a rider. It all depends on the provider.
Typically, a qualifying event for living benefits such as a chronic illness, critical illness, or terminal illness must occur for living benefits to be paid out.
Some life insurance policy living benefits may also be paid out when the insured requires long-term care, as well. Living benefits will vary depending on the insurer.
For permanent life insurance policy holders who want to access cash but don't qualify for living benefits, there may be options to access the policy's cash value while the insured is still alive. The cash value of a permanent life insurance policy like whole life insurance consists of cash savings built up from a portion of the premiums you've paid. Here are some ways to access it:
Be aware that cash value options do not exist for term life insurance, because it does not have cash value. If you want term life insurance but still want potential financial benefits while you're alive, look into term life insurance options like Quality of Life Insurance products that have built-in living benefits.
Enhancing your quality of life while you're alive is important. But it's vital to be aware of how using your life insurance policy while you're alive will affect your loved ones. If you purchased a life insurance policy to protect those you love when you pass on, accessing your policy benefits now may decrease the amount of the death benefits paid out to beneficiaries.
It's also important to know that living benefits payments received are typically not subject to federal income tax.2 However, some states allow for the taxation of living benefits. You'll want to check with your insurance provider about how using living benefits may affect your state tax payments.
Benefits of life insurance do not have to be limited to being used only after you die. Life events change, and what you've paid toward your life insurance policy premium may be accessible while you're still alive. Remember:
Life is unpredictable. Insuring your life for the unexpected now can provide financial protection for you and your family. Contact AIG Direct for a life insurance policy that works for you.
Important Consumer Disclosures Regarding Accelerated Benefit Riders
An Accelerated Death Benefit Rider (ABR) is not a replacement for Long Term Care Insurance (LTCI). It is a life insurance benefit that gives you the option to accelerate some of the death benefit in the event the insured meets the criteria for a qualifying event described in the policy. The rider does not provide long-term care insurance subject to California insurance law, is not a California Partnership for Long-Term Care program policy. The policy is not a Medicare supplement.
ABRs and LTCI provide different types of benefits. An ABR allows the insured to access a portion of the life insurance policy’s death benefit while living. ABR payments are unrestricted and may be used for any purpose. LTCI provides reimbursement for necessary care received due to the inability to perform activities of daily living or cognitive impairment. LTCI coverage may include reimbursement for the cost of a nursing home, assisted living, home health care, homemaker services, adult day care, hospice services or respite care for the primary caretaker and the benefits may be conditioned on certain requirements or meeting an elimination period or limited by type of service, the number of days or a maximum dollar limit. Some ABRs and all LTCI are conditioned upon the insured not being able to perform two or more of the activities of daily living or being cognitively impaired.
This ABR pays proceeds that are intended to qualify for favorable tax treatment under section 101(g) of the Internal Revenue Code. The federal, state, or local tax consequences resulting from payment of an ABR will depend on the specific facts and circumstances, and consequently advice and guidance should be obtained from a personal tax advisor prior to the receipt of any payments. ABR payments may affect eligibility for, or amounts of, Medicaid or other benefits provided by federal, state, or local government. Death benefits and policy values, such as cash values, premium payments and cost of insurance charges if applicable, will be reduced if an ABR payment is made. ABR payments may be limited by the contract or by outstanding policy loans.