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by Chris Huntley
December 10, 2020
by Chris Huntley
December 10, 2020
With U.S. hospitalizations due to COVID-19 hitting new highs, sadly, some families are reviewing life insurance coverage in case of the worst. Not all may be aware of options that can help a policy owner who is seriously ill, or could soon become so.
Life insurance coverage isn’t always static. Some policies allow changes to be made, even decades after coverage is bought. Among those are options that allow access to the death benefit before the policyholder dies, extends the time the policy is in effect, and allows the benefit to be increased, even if poor health would ordinarily preclude such a hike.
Here’s a rundown of three life-insurance features that can help in case of serious medical issues. Not every policy offers them all, but you’ll have greater flexibility if even one of these options is open to you. And if you’re in the market for life insurance, consider adding these features to the list of attributes you want in a policy.
The onset of life-threatening medical issues may leave you wanting to leave more to your family than you planned, to fill a financial gap from your earlier-than-anticipated death.
As a rule, you can’t get a life insurance policy or increase the benefit on an existing policy if you’re seriously ill. Some plans, however, allow you to purchase additional coverage without regard to your current health. A Guaranteed Insurability Rider enables you to increase the death benefit without need for a medical exam or even answering questions about your health.
Such riders typically have calendar windows (or option dates) when you can add more coverage, such as every three or five years from the date in which your policy began. The rider may also be activated by certain life events. For example, some plans allow coverage to be doubled when a child turns 18 or 25, or to add to your coverage when you get married or have a child.
The rider is most often included with whole life insurance, rather than with less expensive term policies, according to online insurance marketplace Policygenius. The additional cost needn’t be prohibitive; hikes can be as little as $3-$5 a month, Policygenius says.
Check your policy or call your insurance provider to see if you have the rider. If you the option is present and you are in, or close to, an eligible window to add coverage, consider using it if you’re sick or particularly fearful of becoming so.
If you’re sick and have a term life policy, you may want to ensure you’ll have ongoing coverage after your current policy term expires. Say, for example, that you own a 20-year-term life insurance policy, and you’re 19 years into your plan. Depending on the plan details, you could a year from now be left without coverage because your illness will be a pre-existing condition that prevents you from renewing or opening a policy.
Fortunately, many term policies come with a feature that allows the policy to be converted into a permanent plan without need to prove you’re in good health. If your policy has that option, you can essentially swap your current term plan for one that is permanent, such as a whole life insurance policy that can provide you with coverage through age 90, 100, or even 120.
If you were in excellent health when you first purchased your term plan, there’s more good news. The converted policy will retain the health rating you qualified for with the original coverage. For example, if you earned a Preferred health-class rating on your term policy, that’s the rating you’ll get on your permanent plan. It doesn’t matter if you’ve contracted a serious disease or otherwise experienced a slide in your health since the original purchase. No health disclosure or medical exam is required.
Conversion is a fairly simple.process that begins with reaching out to a company representative to find out if your policy has this option, and if and when you’re eligible to use it. However, life insurance providers often add limits to their term conversion features, warns.Chris Lalor, a life-insurance agent based in Paoli, Pennsylvania. For example, he says, you may be able to convert your policy for only the first 20 years of a 30-year policy, or only up to a maximum age of 60 or 65.
Check the fine print in your policy to be sure you’re indeed eligible. Assuming you are, request quotes on the cost a new policy to replace your term coverage. While you’ll keep your original health rating, you should nonetheless expect a premium increase, since you’ll be lengthening your period of coverage. The longer your insurance company is on the hook to pay out a death benefit, the higher the cost of the policy.
Many companies allow you to take out a portion of your life insurance death benefit while you’re still living should you be diagnosed with a terminal or chronic illness, are confined to a nursing home, or require at-home care.
The feature is commonly known as an Accelerated Death-Benefit Rider, so named because it allows the accelerated receipt of a death benefit that normally wouldn’t pay out until after the policyholder dies.
While the rider is well known within the life-insurance industry, many consumers remain unaware of it. Indeed, if you own a life insurance policy, there’s a good chance it includes some sort of living benefit like the rider. For many insurance providers, it’s often automatically included at no extra cost or for a nominal cost. An influx of cash can be a financial savior when health issues arise. That’s why I always recommend policies that contain living benefits.
Your policy will state how much of your death benefit is available through the rider, but according to Michael Quinn, owner of LifeInsuranceBlog.net, it’s typically capped at 50% of the death benefit. There may also be a dollar cap of between $250,000 to $500,000. The cash can be used for medical treatment, travel, long-term care, or any other purpose you wish.
After you’ve established eligibility for the accelerated payout, you apply for the amount you want. The funds are usually paid directly to the policy owner. The death benefit due to the policy’s beneficiary is then reduced by the amount you’ve withdrawn. For example, if you drew out $250,000 from a policy with a $1 million dollar death benefit, the benefit would typically be reduced to $750,000.
The bottom line: If your health has taken a turn for the worse, I strongly recommend taking a look at your insurance policy to see if it contains any provisions for term conversion, early payout, or the ability to add coverage. If you are confused in any way, I also recommend contacting your insurance provider or agent for help. You just may find some unexpected benefits you can use.