Living Benefits Riders

Question 1

List 3 characteristcs of an Accelerated Benefits Riders

Answer 1

• many life insurance policies today provide this benefit automatically, without additional charge, as a standard policy provision
• an accelerated benefits provision (or rider) allows a payout of some portion of the policy’s death benefit while the insured is still living (a “living” beneft).
• allows up to 50 percent of the death benefit to be available, though some policies allow up to 100 percent.

Any amount of the death benefit not distributed through an accelerated benefits provision remains payable to the policy’s named beneficiary at the insured’s death.

Question 2

Qualifying for Accelerated Benefits

Answer 2

To qualify for this benefit, the insured must prove that he or she either has a

1. terminal illness (death due within 24 mos)
2. catastrophic accident that results in permanent disability requiring long-term care

Once certified as terminally ill or critically injured, the insured may be permitted to choose whether he or she wants to receive the payout as

• a lump sum or
• monthly payments over a set time period.

Question 3

What does No Special Exclusions and Restrictions mean with regard to accelerated benefits?

Answer 3

Most states prohibit life insurance policies from imposing any

• restrictions or exclusions on accelerated benefits that are not also excluded or restricted in the base life insurance policy as well.
• accelerated death benefit must be incontestable on the same (if not more favorable) basis as the base policy.

Question 4

Effect of Accelerated Benefit on Policy’s Death Benefit

Answer 4

Benefits are typically limited to something less than the full death benefit (50-70%)

There is no prohibition against insurers providing access to the full death benefit, though this is uncommon.

Question 5

What 3 things must the Disclosure include?

Answer 5

If a life policy includes an accelerated benefit, most states require that insurers provide a disclosure statement to the applicant at the time of application.

The disclosure must provide …

• a brief description of accelerated benefits
• definitions of conditions triggering payment of benefits
• an explanation of the effect payment would have on the policy’s cash value, accumulation account, death benefit, premium, and policy loans.

Some states require that the disclosure note that receipt of accelerated benefit payments may adversely affect the recipient’s eligibility for Medicaid or other government benefits. Further, some states require that the disclosure note that receipt of accelerated benefits may be taxable. In practice, most insurers include these notes as a standard part of their disclosure in all states where they sell the product.

Question 6

Name 3 characteristics of a Long-Term Care Rider

Answer 6

This rider provides financial support for the costs of medical care, nursing home care, and assisted living care for extended durations.

Like the accelerated benefits provision, the LTC rider

1. allows a portion of the life policy’s face amount to be paid out if the insured requires long-term care.
2. LTC benefit does not require the insured to suffer a catastrophic injury to qualify for long-term care benefits.
3. LTC riders typically come at a modest cost, whereas the accelerated benefits provision is commonly included at no charge in life policies today.

Some insurers offer additional options that provide funds for adult day care, hospice care, and more.

Question 7

What are the Conditions for LTC Payment if for a medical reason or a mental health reason?

What did HIPAA mandate in 1996?

What does HIPAA allow insurers to require?

Answer 7

LTC rider benefits become payable when the insured is diagnosed as chronically ill, for either a medical or cognitive (mental health) reason.

• If for a medical reason, then the insured must be certified as unable to perform at least two activities of daily living (ADLs) for at least 90 days.
• If for a mental health reason, then the insured must prove that his or her health or safety would be at risk without supervision. The insured must be certified within the previous 12 months.

1. Health Insurance Portability and Accountability Act (HIPAA) of 1996, stated that insured does not need to be hospitalized prior to qualifying for LTC insurance benefits.
2. They may require an elimination or waiting period of 10 to 100 days before benefits are payable.

Question 8

Effect of the LTC Rider on the Policy’s Death Benefit

Describe the 2 options.

Answer 8

The impact of the LTC rider on a policy’s death benefit depends on which rider option the policyowner selects.

Insurers offer two options:

1. Generalized (or independent) option—Under this option, Benefits paid to the insured do not affect the life policy’s face amount. This rider comes at a higher cost than the integrated option since it provides benefits in addition to the policy’s death benefit.
2. Integrated option—Under this option, the LTC benefits are linked to the life insurance policy’s face amount. The beneficiary receives the remainder as the death benefit. (In this way, the LTC integrated option is similar to the accelerated death benefit rider.) This rider comes at a modest cost and may even be included at no charge as part of the accelerated benefit provision.