Living Benefit Riders, also known as Accelerated Death Benefit Riders, are additions added to a life insurance policy that are meant to pay out to you in the event of certain clinical medical diagnoses. Having a policy that adds living benefit riders has immense value and can pay you out a portion of or the sum of the policy in the event of a medical tragedy. I will detail each of the main types of Living Benefits, what they traditionally cover and how they pay out. Each of these explanations and descriptions are an amalgamation of multiple insurance carriers’ policies, and do not directly reflect any single carrier. In order for you to understand your policies living benefit riders, reference your policy, your advisor or call the insurance carrier directly.
Critical Illness Rider Explanation
A critical illness rider can be enacted if within the last 12 months a physician has certified that you were diagnosed with one of the following conditions:
Invasive Cancer. Leukemia, lymphomas and multiple Myeloma are included in this diagnosis. A malignant neoplasm is traditionally included as well. What is not included are:
- Pre-malignant lesions
- Benign tumors or polyps
- Early prostate cancer diagnosed as T1N0M0
- Cancer in Situ
- Any skin cancer.
Invasive Cancer must be diagnosed pursuant to a Pathological Diagnosis or Clinical Diagnosis.
Myocardial Infarction, i.e. Heart Attack. This constitutes an acute heart attack the requires an inpatient hospital stay AND results in the death of a portion of heart muscle due to inadequate blood supply to the relevant area from a blockage of one or more coronary arteries. Heart attack includes ST elevation, non-ST elevation, Q-wave and non-Q wave presentations. In order to be covered a concurrent rise and/or fall of cardiac biomarkers must be present. Lastly, the acute heart attack must be diagnosed by a Physician who is board certified in cardiology or internal medicine based on the following:
- A clinical setting consistent with symptoms of ischemic heart disease.
- New electrocardiograph or cardiac imaging changes consistent with cardiac tissue death.
- Development of new Q waves during or immediately following an intra-arterial cardiac procedure.
Stroke. Any acute cerebrovascular accident producing neurological impairment and resulting in paralysis or other measurable objective neurological deficit persisting for at least 96 hours and expected to be permanent. TIA (mini-stroke), head injury, chronic cerebrovascular insufficiency and reversible ischemic neurological deficits are not included in this rider. The diagnosis must be made by a Physician that is board certified as a Neurologist.
Amyotrophic Lateral Sclerosis (ALS). This diagnosis is simple, it just needs to be made by a Physician that is board certified as a Neurologist.
End Stage Renal Failure (Kidney Failure). This is termed as the chronic irreversible failure of both kidneys’ ability to function, which would result in the need for regular hemodialysis, peritoneal dialysis or renal transplantation. This diagnosis must be made by a Physician that is board certified as a Nephrologist.
Major Organ Failure. This is defined as the clinical evidence of major organ(s) failure which requires the malfunctioning organ(s) or tissue to be replaced with an organ(s) or tissue from a suitable human donor. The organs and tissues that are generally covered under this policy are: liver, kidney, lung, entire heart, small intestine, pancreas, pancreas-kidney and bone marrow. In order for this to be covered the insured must be registered by the United Network of Organ Sharing (UNOS) or the National Marrow Donor Program (NMDP).
These are the typical illnesses covered under most critical illness policies for various carriers. Once you have a diagnosis, you can file a claim with your carrier, with help from your advisor, in order to receive the accelerated death benefit. Each carrier varies on how much they will pay out but it’s a scale between 70% to 100% of the policies death benefit amount, minus any debt owed on the policy.
Chronic illness Rider Explanation
A chronic illness is defined as an illness that within the last 12 months a Physician has certified that for a continuous period of at least 90 days, you:
a) are unable to perform, without assistance from another person, at least two activities of daily living due to loss of capacity; or
b) requires substantial supervision to protect themselves from the threat to health and safety due to Severe Cognitive Impairment.
Activities of Daily Living are the six basic activities required for all persons to remain independent. They are:
- Toileting- getting to and from the toilet.
- Transferring- getting in and out of bed, chair or wheelchair.
- Dressing oneself
- Continence- the ability to bowel and bladder function.
As you can see these functions can be altered or diminished not only for medical reasons, but also for accidental. Imagine getting into a car accident. You don’t die but your legs are crushed, and you forever lose the use of your legs. Well this would qualify as a chronic illness, under dressing and transferring.
This rider is also, at times termed by advisors as a medical disability rider, which should not be confused with disability riders or being on disability with the government.
Again, each carrier pays out in various means for this rider, but once you have been in a chronic condition for 90 days you can file the paperwork with the carrier for payout. Review your policy to understand how the rider is paid out or speak with your advisor or the carrier.
Terminal Illness Rider Explanation
This is the simplest rider to explain. If you become terminally ill with at least 12 months left to live with a written statement of a Physician stating the terminal illness, you can enact the policy.
Most, but not all, carriers pay out at 100% of the death benefit for this rider.
All riders, when enacted, must be verified with medical records by the insurance carrier. They will make the determination on whether it fits within the guidelines for pay out. This traditionally will take at a minimum 15 business days. Be proactive and be patient. Ask the carrier what information they will need and get it for them. Traditionally, you can get your medical records released to you faster than the carrier can get them released. Once you realize this, you should have no issues being proactive on getting the requisite paperwork completed and sent into the carrier. Additionally, work with your advisor that helped you with the policy. Keep them in the loop and if they are experienced, they can be a guide through the process to help you get everything completed more expeditiously.
This is just a small explanation of the most typical living benefit riders that come with certain policies and at no additional cost. Keeping this in mind you can see why getting a policy with these riders is more beneficial than getting a standard term policy. Standard term policies just protect in case of death and will likely be cheaper. Industry average is that 2% of all term policies actually pay out, though. When you add living benefit riders, you add more cost for the additional value, but that payout amount jumps from less than 2% and goes to nearly 20% payout. That’s an added benefit you can’t ignore.
Which is best for you, you have to determine what you want your coverage to do for you, there is no perfect policy. Speak with your advisor or reach out to me for a no obligation session, where I can explain to you the ins and outs of different policies that could suit your needs.