The
number of riders currently available on
the market almost outnumbers the number
of policies available. In
our view, most of these policy "add-ons"
are pretty good at extracting extra
premium for the carrier which would
probably best be spent on either long
term lengths or higher amounts of term
life coverage. The living benefit
rider by just be an exception so let's
take a look at how it works.
First
a quick synopsis of what the living
benefit rider actually does.
Essentially, this rider allows the
policy holder (not the beneficiary) to
receive some portion of the term benefit
if diagnosed with a terminal illness.
It allows a person who has a limited
time to live the ability to receive
money while living. So what
gives...why would the carrier allow a
policy holder this ability. Well
it's not altruism but it might work for
all parties. Keep in mind that the
policy holder may only receive a portion
of the total life policy value.
It's very similar to the common lottery
ruse where you have win you're $5
million amount with 10 years of $500K
each year or all up front for $3.8
million. Most people will accept
the $3.8 million because delayed
gratification is a very rare gift in the
U.S.
In
his case, it may actually benefit the
insurance policy holder as well.
For a person facing a terminal illness,
the ability to access this money may be
a godsend. This person may be
facing extremely large medical bills
(which unfortunately, is common in such
an event). The last thing you want
to face during such a time is a slew of
medical bills which are probably
jeopardized by decreasing income due to
work stoppage. Furthermore,
working 2-3 jobs to pay off these bills
is hardly the thing you want to do if
you've been diagnosed with a
terminal illness.
The
person's life insurance needs may be
different where the money is needed more
now then after he passes. Indeed,
if the person's policy is older, the
actual life insurance need may not be
relevant anymore. Children
may be self sufficient or other sources
of income or assets are available to
spouses. The original
"beneficiary" need for the life
insurance policy itself may not be as
pressing. There's also the ability
to be in relative comfort during this
period of time which is no small matter.
The money can be used to help
loved-ones, take trips if possible, and
live to the fullest. A policy-paid
bucket list. In this light, the
living benefit rider could be pretty
special. So what's the catch or
the cost?
Surprisingly, this particular rider is
usually pretty inexpensive and is
sometimes offered at no additional cost
for the reason I mentioned above
(receiving percentage of the total face
value of term life policy). The
lost of some portion of the face value
may be outweighed by the ability to
access the money earlier. This is
obviously a calculation that each person
needs to make based on his/her situation
and we can help with these types of
questions since we're licensed life
insurance agents. If a portion of
the total life benefit is accessed, the
remaining benefit may still be available
to the beneficiary upon triggering the
core life benefits. The policy
holder may even be able to add the
living benefit rider after the policy is
in force.
The
main consideration with the living
benefit rider is whether you will lose a
significant percentage of total benefit
by electing this option. The
secondary concern is whether the money
is better served as a living benefit or
as a core term life benefit to your
beneficiaries. Again, this depends
on the policy provisions and your own
life insurance needs.
As
you can see from the many articles in
our site about riders and the potential
costs associated with, we're not in the
business of "selling" riders. All
in all, the living benefit rider rarely
takes away (in the form of premium) but
adds flexibility to any policy.
You never know when flexibility will
prove priceless...at any cost!
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