What Is A Living Benefit?
A living benefit is a type of insurance used to cover the final expenses related to end-of-life care.
The cost of long-term care is typically out of reach for most people. A living benefit makes it easier to afford the services needed and also allows you to pay out of pocket … and it’s tax deductible.
The premium typically includes four parts:
- A basic death benefit that pays a death benefit to your beneficiary when you die
- An accelerated death benefit that pays an immediate death benefit and allows you to place an amount in a money market account
- A living benefit that can be used at any time to help cover the cost of care or premiums
- A savings component that can be used to pay for care
The main difference between this and other policies is the ability to spend this money while you are still alive. Another thing to keep in mind is that most living benefits are designed to cover long-term care costs only. So you might not be able to use the benefit for ongoing medical costs (such as routine doctor visits, prescriptions, etc.).
How Do You Qualify For An Accelerated Death Benefit?
There are a few things that your insurance company will need from you in order to process an accelerated death benefit claim. They will need your death certificate, your obituary, and the amount of the life insurance policy. Your policy also has to be under a specific amount, and your doctor has to certify that you are terminal.
In order to get your accelerated death benefit payout, your insurance company must agree that you are terminal with a life expectancy of six months or less. This will be decided by your doctor based on the condition and quality of your life expectancy. Other factors that your doctor will consider when he gives you a terminal diagnosis are how you are physically, mentally, and emotionally coping with the situations you are facing.
Your insurance company may ask for your Social Security number and other personal information, such as a copy of your photo ID or your birth certificate, in order to verify that you are who you say you are. They will also check the balance of your policy to find out exactly how much insurance you have.
Once they have gathered all the information they need to make their decision, your insurance company will send you a check within six to eight weeks. You will also have the option of receiving the money by bank draft, and many insurance companies allow you to choose monthly payments if you choose that option.
How Are You Taxed On Accelerated Death Benefits?
Death benefits are generally paid to the designated beneficiary or individuals who are financially dependent on the deceased person. The beneficiary may use the money to pay for funeral costs or other final expenses or may keep the money in a savings account. The beneficiary must use the money by the end of the year following the year in which the person passes away.
The deceased’s estate is responsible for paying taxes on the amount of money that is paid out as a death benefit. Death benefit tax rates may be different for each state. The beneficiary does not have to pay taxes on the money he or she receives as a death benefit.
In order to minimize future tax obligations that the beneficiary may have regarding the death benefit, it is a good idea for the beneficiary to keep the money in a long term savings account for a period of one to four years before spending the money. If the beneficiary uses the money within one year of receiving the death benefit, he may have to pay taxes on the money.
When calculating taxes owed on a death benefit, the beneficiary may be able to deduct the following expenses:
- Funeral costs
- Medical expenses paid prior to the date of death
- Reasonable travel expenses
Accelerated Death Benefit Example
You’re retiring in two years and you’ve decided to take out a single life term policy. And for some reason, you need to start receiving the benefit now.
So you talk to the insurance company about requesting an Accelerated Death Benefit. In this situation, you will be able to take out the benefit now, instead of waiting until you’re age 65 or older. And the premium is going to be based solely on the age of 55.
It’s like hitting the “fast forward” button on the life expectancy table. The benefits are going to be figured out based on your current age (55) rather than your actual age. Your age at the time of application is the most critical factor when trying to take out an accelerated death benefit.
What About Chronic Illness?
As we get older, we can develop chronic conditions and suffer from long-term illnesses. If you have a serious medical condition, such as Alzheimer’s disease or another debilitating disorder, you may feel as if you’re living a life that’s not worth living.
A well-familiar situation is where you’re living with your spouse and they are suffering from a chronic disease or medical condition such as Alzheimer’s disease. If the disease has progressed to the point where the disease’s suffering becomes unbearable for the both of you, you may want to consider an accelerated death benefit.
But what is the accelerated death benefit and how does it work?
An accelerated death benefit is a financial life planning preservation strategy that’s available to you as the policyholder and your beneficiary. It allows you to make a limited payout in the form of an income annuity to your beneficiary, should you decide to discontinue life-prolonging medical treatments.
An accelerated death benefit allows you to retain dignity, makes it easier for your family to make end-of-life care decisions and is considered a last resort in the context of medical end-of-life scenarios.
Accelerated Death Riders and Life Insurance
Sometimes life can defy logic; sometimes people are faced with difficult decisions, and sometimes the reality hits too hard. One of the most difficult decisions that a person has to make is deciding whether to continue long-term care for a terminally ill loved one or stop the care.
Many people have trouble making that decision, and often they will make the decision later than they should because they don’t want to think about it. So what’s the answer? Many people have their own opinions on the subject. Some will say that you should think about it as a partnership and that you all together should decide what’s best. Others think that step should always be the choice of the person who is ill. Still others say that it’s always the spouse’s decision.
Life insurance companies also have opinions. They are in the business of designing policies that solve problems. This is one of those instances where the company’s opinion may not coincide with the insured’s.