Benefits When You Need Then Most
It's hard when you find out someone's dying. It can be more difficult
when large medical expenses create significant financial burdens on that individual and
his or her family. However, a few insurance companies are helping alleviate these problems
by offering "accelerated" or "living benefits."
Typically available on individual life insurance, accelerated benefits advance a portion
of the policy's face amount prior to death. Some companies offer these benefits in
conjunction with both new and existing policies, while others limit them to new policies.
The benefits are usually triggered by one of the following:
 | A terminal illness with death expected within a specified number of months |
| Catastrophic medical problems often leading to death, such as heart attacks or renal failure |
| Permanent confinement in a nursing home |
Accelerated benefits provide an
alternative to totally surrendering a life insurance policy's cash value, causing a loss
of death benefits. These benefits can advance up to 75 percent of a policy's face amount,
often exceeding the cash value. The balance of the face amount is then left intact for
beneficiaries.
In most instances, insureds don't have to demonstrate financial need and there are not
criteria to limit how benefits are used. There may be charges for adding the rider and/or
for receiving benefits from it.
For more information on programs of this type, contact your financial professional.
Financial worries can compound the emotional hardships of a terminal illness. But if money
comes when it's needed the most, it can be a big benefit.
Please note: Accelerated Benefits Rider is not available in all states and subject to
variation among states where available.
It'll Never Happen to Me
That's what a lot of us think. But, disability could happen to anyone, anytime. If it
happens to you, are you prepared?
What is disability? Definitions can get complicated, but basically, when you become too
sick or hurt to work, you are disabled. Lots of disabilities are short-lived -- a pulled
muscle, a sprained ankle, or a bout with the flu -- nothing that causes real problems in
terms of your ability to continue working and providing for your family.
What if you suffered a heart attack? Or, had a serious car accident and had to spend a
long time in a hospital, or worse yet, never fully recovered? What if you became gravely
ill? Dramatic scenarios perhaps, but they happen every day to people, and there's no
guarantee it won't be you.
And if it is you, and you can't work, where will the money come from to make your house
payment? Make the car payment? Would it come from friends? Relatives? Maybe. But that can
be a difficult situation at best. If you're the owner of your business, you may think you
can just continue to draw a salary. Do you have that kind of cash reserve? The IRS may
question this tactic and attempt to tax the payments as dividends. Fortunately, planning
ahead for disability can make the answers to these questions easier.
Almost everyone has a start on disability planning. Social Security provides a disability
benefit, but the requirements for collecting benefits are stringent.
Income Replacement
Many people don't realize that beyond Social Security benefits, they have little
protection from disability. Individually-purchased disability income policies can provide
coverage, and the policy can be tailored to meet individual needs. To evaluate your
situation, here are a couple of things to think about:
How long could you wait before receiving benefits? If you have substantial savings, you
can opt for a longer wait before benefits begin. This can reduce your premium.
How long will you want to receive benefits? Insurance companies offer a variety of benefit
periods: for instance, payments for two years, five years and even to age 65 are common.
When the insurance company is exposed to less risk, the shorter the benefit period, the
lower the premium.
Business owners, pressed by the day-to-day demands on cash flow, think they are saving
money by not buying disability insurance for themselves. Premiums are affordable, and
could actually be less than the premium paid to insure the business' equipment from
casualty losses. The problem is, most business owners don't think of themselves as
business assets, when in fact they are probably the most valuable asset to keeping the
business running.
Taxation
If disability premiums are paid with after-tax dollars, benefits are income tax-free when
they're received. If your company pays the premium and takes a tax deduction for the
expense, benefits will be taxed as ordinary income. You should consult a knowledgeable tax
advisor to discuss which method is best for you.
It May Not Be All The Money In The World...
But your family, your lifestyle, and your business depend on it. Insurance industry
studies conclude that 60 to 70 percent of the nation's small-business owners have no
personal disability coverage.* This is a chilling estimate since the chance of becoming
disabled before age 65 is greater than dying prior to age 65.** You owe it to yourself to
take a good look at your situation.
Remember, it could happen to you. Planning ahead can make all the difference in the world.
* LIMRA 1989 Small Business Survey
** 1980 Commissioner's Standard Ordinary
Disability measure has limitations and exclusions. Contact your insurance representative
for costs and complete details of coverage.
