Life insurance is mainly designed to pay out death benefits to beneficiaries. But some life insurance policies also provide living benefits for policyholders. The following are three types of life insurance living benefits.

Accelerated Death Benefits

Most life insurance policies contain a provision known as Accelerated Death Benefit (ADB). It allows the policyholder to receive a portion of the life insurance money while he or she is still living under certain circumstances. Generally, the ADB provision applies when the policyholder has been diagnosed with a terminal illness and has a life expectancy of a specified time (six months to two years, depending on the policy). Certain disabling conditions can also qualify a person, with no requirement as to life expectancy. Although it varies from policy to policy, Accelerated Death Benefit amounts usually range from 50% to 80% of the policy value.

In most cases, no restrictions are imposed on how ADB funds can be used. The policyholder can use this money to cover experimental treatments, medications, or hospital bills. Some people use the funds to pay off a mortgage or provide for their family’s future. Others use them for living expenses or vacations.

Any person with a life insurance policy and a terminal illness may qualify for Accelerated Death Benefits. Depending on the policy and state laws, individuals with organ failure who are not candidates for transplants, people who need artificial life support, and those with Amyotrophic Lateral Sclerosis (ALS) may also qualify.

Long-Term Care Benefits

Long-term care is another living benefit that is usually available with certain permanent life insurance policies. A long-term care (LTC) rider allows the policyholder to receive a portion of the death benefit while still living to cover long-term care expenses.

Qualifications are different for LTC and ADB benefits. A chronic illness that prevents the person from performing activities of daily living, such as eating, bathing, or dressing, can trigger an LTC rider. Examples include cancer, Alzheimer’s, Crohn’s disease, epilepsy, and MS (multiple sclerosis). ADB requires a diagnosis of terminal illness.

Policy Loans

Policy loans are also known as life insurance loans. Life insurance companies issue loans to policyholders, using the cash value of a life insurance policy as collateral. Traditionally, interest rates on policy loans have been very low, but that is no longer always the case.

Insurance companies only issue loans on permanent, whole life, or universal life insurance policies that have accumulated cash value. Borrowers have various options for repayment, including periodic loan payments, or paying only the annual interest on the loan. Should the borrower fail to repay the loan, the insurance company would withdraw payment from the death benefit of the policy.

Life insurance is primarily designed to replace income when a breadwinner dies. But it is also a vehicle for investment and estate planning, and it has living benefits that can be accessed while the person is still alive. Meet with our knowledgeable agent for answers to any life insurance questions you may have.

Traditional life insurance is low risk and offers guaranteed maturity returns to policyholders. Nontraditional life insurance combines investment and insurance in a single policy. These plans invest in the market and have the potential to earn higher returns because of their higher-risk nature. If you have not been able to obtain traditional life insurance, you should know about these nontraditional life insurance plans.

Graded Life Insurance

Graded life insurance may be an option if you cannot get approved for standard life insurance. No medical exam is required. This type of whole life insurance policy comes with a waiting period for full death benefits. The payout is graded on a schedule, depending on how much time has elapsed since you purchased the policy.

Full death benefits are not paid out until after two or three years have passed with graded life insurance. If death occurs during that waiting period, your beneficiaries will receive tax-free benefits, but not the full amount of the policy. They may receive a return of your premiums plus interest (typically 10%) or a graded payment, which is a percentage of the death benefit. Graded policies are better because your beneficiaries will receive more.

As graded life insurance policies are considered high risk, rates are higher than for standard policies. On the plus side, this type of policy builds cash value, and the rates are guaranteed for life.

Although there are some health questions, most people can qualify for graded life insurance — even individuals who have had heart conditions, cancer, or suffered a stroke – provided two years have passed since the occurrence. Graded insurance policies may serve as a last resort for people with major health problems who could not get life insurance otherwise.

Guaranteed Issue Life Insurance

Guaranteed issue life insurance is also known as guaranteed acceptance life insurance or no questions life insurance. It is a permanent, whole life policy that does not require a medical exam. You do not have to answer health questions or allow the insurance company access to your medical records. The insurer guarantees it will issue you a life insurance policy as long as your age is within the allowed range at the time you apply. The age range is typically 50 to 80.

However, this life insurance comes with a catch, which is the waiting period of two years for most policies and three years for some. If your death occurs during the waiting period, your beneficiaries will only get a return of all your premiums plus interest, usually 10%.

Cash death benefits with guaranteed life insurance range from $2,000 to $25,000. These policies have higher premiums in relation to death benefits than other types of life insurance.

Graded and guaranteed life insurance are two options to consider if you have not been able to get standard life insurance. The main disadvantage with both types of policies is the required waiting period during which your beneficiaries will not receive full benefits. Meet with our friendly agent to review all your life insurance options.