Aging comes certain inevitable packages, there are some we will like such as grandkids, free time, etc. There are some of these packages, we don’t like so much such as aching, age-related health issues among others. Aging is part of what makes people especially seniors’ embrace life insurance.
People mostly look at life insurance as nothing more than death benefits left behind for the listed beneficiaries after the death of the insured.
What happens when you are in dire need of funds while still alive?
Well, the good news is you can accelerate your death benefits to pay certain bills.
What are Living Benefits?
Life is unpredictable and can throw anything at us at any time. In some cases, you can find yourself in a certain medical condition that requires urgent funds and worst off, you could short of funds.
In cases like this, your life insurance policy could come in handy.
Yes, you heard that right; a lot of insurance firms are now incorporating living benefits into the life insurance policy.
What living benefits offer is the ability to accelerate a part of your death benefits, which enable you to use it before you die. However, the aftereffect of that action is an increase in monthly premiums and a decrease in death benefits.
Before activating this option in your policy, it is crucial you understand your life insurance policy properly and determine if your medical condition qualifies for it.
The Conditions for Accelerating Death Benefits
When you are issued with life insurance policy, there are two health-based requirements designed into your plan, which can enable you to file a claim against your death benefits to pay off your medical bills.
- In the case of life-threatening or chronic diseases.
- In a situation where the insured cannot look after himself/herself and require external help.
There may be variations based on insurance plans, however, the two requirements above are the basic.
Once you satisfy the above conditions, insurance companies will consider your claim but beware of the financial consequences of withdrawing your funds earlier than speculated. The ways insurance firms bill the insured if they plan to withdraw early is through the reduction in death benefits or through additional charges on your rates.
You have to provide a note from your doctor proving you are truly sick to avoid tax troubles.
The Recipient of the Money
You may be wondering since the reason I am withdrawing this money is to pay medical bills then who receive this money?
Is it the hospital, you – the insured, or the insurance company pay directly for the medical bills?
The simple answer is you get the cash withdrawn from your policy and you make the decision on how, where, when and who to spend it on. You can decide to use to offset your medical bills, seek further treatment, pay for health insurance or even recover financially.
How Do Insurance Firms Provide Living Benefits?
Insurers provide livings benefits through what is called acceleration riders, we have three main riders.
They are:
- Terminal illness rider.
- Chronic rider.
- Critical rider.
A lot of insurers provide the terminal illness rider, nevertheless, there are firms providing the three riders. Every insurance firms have their guideline on how to qualify for those living benefits.
Things You Must Understand
Reduction of Death Benefit
By accelerating part of your death benefit that you are using before you die. This is why many insured consider this as the last option after so many options. However, if eventually, you do need to dip into your death benefit, use it judiciously.
Charge for Accelerating Funds
Insurance firms will bill you administrative charges, which is taken from the part you accelerated. This charge stands as the fee of the request you made and the review and processing of such requests.
These charges differ depending on the insurance firm; basically, it ranges between $350 and $500 per claim.
You Can Accept or Reject
Please note, you should carefully examine the offer tabled by the insurance firms and once you find it unsatisfactory. You can reject the offer, your medical condition doesn’t mean you should settle just for any offer.
Tax Consequences
Although life insurance policies are accorded favorable tax policy but using living benefits could be placed under another tax category.
Accelerated Benefit Riders vs. Cash Value
Apart from living benefits, another way to access funds from your life insurance policy is through cash value. Cash value represents the money accumulating in your policy, you can leave it to build up over time, which leads to increased death benefits or you can take a loan against its value.
There are certain policies that offer cash value and they are usually permanent life insurance like Universal Life, Indexed Universal Life, and Whole Life.
How Life Insurance Can Be Used to Pay Seniors’ Medical Bills?
The projection is that about 70 percent of seniors aged 70 will require one kind of long-term care or another. There are professional that offers services to assist seniors with disabilities that make it hard to carry out activities of daily living.
There are six common activities of daily living (ADLs) such as dressing, continence, eating, transferring and toileting. For seniors, there are ways to help pay for this service if funds come up short.
There are permanent life insurance policies that provide additional options called riders. They offer most times tax-free funds to assist in the payment of medical bills for long-term care or similar healthcare services.
These options are added to your life insurance policy at a cost to assist in the payment of a series of health-related bills.
Long-Term Care Rider (LTC)
This rider is used to cover payments for the nursing home, home healthcare, adult daycare, assisted living, etc.
LTC covers the insured that can’t carry out a minimum of two out of the six activities of daily living, usually because of certain medical conditions like stroke or Alzheimer’s.
Additionally, the ailment will have lasted for a minimum of 90 days to qualify for this rider. The protection is available should you need it, however, if not, your cash value will still be intact for other future uses.
How the Rider is Applied?
The LTC rider usually has the insured paying the medical bills for their long-term care by themselves, after which necessary documents are submitted for reimbursement of the money spent.
However, some riders are released in advance but they normally cater only medical bills linked to the listed medical conditions.
Terminal Illness Rider
This type of rider can be included in your permanent life insurance. It can also be added as an option at the time of the initial issuance of the policy. The rider allows the insured to accelerate a part of the death benefit to cover bills incurred due to a terminal illness.
The rider is activated when the insured falls terminally sick, and typically have a life expectancy between 12 and 24 months. After been diagnosed, the insured gets a certain percent of the whole death benefit as speculated by the terms of life insurance.
How the Rider is Applied?
The rider release the money in advance, the total cash disbursed will be removed from the death benefit of the life insurance policy. The rider is utilized to cover expenses on non-medical treatment, hospital bills, drugs, and medical treatment.
Chronic Illness Rider (CI)
This rider uses part of your death benefit to pay for the cost associated with chronic diseases such as neurological disorders, dementia, etc. that leave you debilitated for good.
This rider is activated if the policyholder can’t carry out a minimum of two of six most common ADLs. The rider usually offers benefits for permanent medical conditions, which are non-recoverable.
However, if your rider is not used then the cash value will stay untouched to cover future expenses or add to your death benefits.
How the Rider is Applied?
For the CI rider, the money is released in advance to the policyholder to help cover non-medical and medical bills.
In the case of the mentioned riders above, there is no obligation for the benefits to be paid back. The benefits are removed from the life insurance total death benefit.
Notwithstanding, in the case of some LTC, CI, and terminal illness riders, the insured has to continue with the payment of the monthly premiums even when collecting the riders’ benefits.
Conclusion
In short, the answer to the question, “can your life insurance policy help pay for your medical bills?” is yes.
In summary, certain insurance firms might not even request a medical examination from you and to top it. There could still be options for you should your health deteriorate. It is a worthy investment to get a life insurance policy that has living benefits included.
Having that at your reach is very valuable whether you get to use those benefits or not, at least you have peace of mind.
