Life insurance can provide many solutions for you, and it’s an important part in creating a secure financial plan. Most importantly, it provides a death benefit when your family may need it most. Life insurance can also offer additional benefits for you while you’re still living.
Fixed indexed universal life insurance (FIUL) products can offer lifelong flexible protection and important features. These features could include things like tax benefits. For example, there could be tax-deferred growth potential on your account, as well as insurance benefits that are generally not subject to income tax.
You could have a choice in death benefit options, like the face amount of your policy or the face amount plus your account value. You could have death benefits taken as a lump sum or as periodic payments. You may also adjust the death benefits.
You can choose from several options for earning interest on your account value: one fixed interest option or additional options tied to market indexes. All of the options have a minimum guaranteed rate.1
You also may withdraw money at any time after year one.2 These withdrawals are subject to surrender charges.
Last but not least, you can customize your life insurance policy with a wide array of optional rider benefits to suit your family’s needs. The rider benefits do have limitations, restrictions and, in some cases, additional charges. Be sure to discuss all of these features and options with your financial or insurance professional to know what can work for your specific situation.
What is an “accelerated death benefit” rider?
Accelerated death benefit riders, offered with life insurance, give you access to your death benefit when certain conditions are met. You may hear “accelerated death benefit riders” referred to as “living benefit riders” because they protect you while you’re still alive.
There are three living benefit riders on an F&G FIUL policy. These are defined conditions, and the benefits and availability may vary by state. You can find examples of each condition later in this post.
This benefit allows the acceleration of up to 100% of your policy’s death benefit, not to exceed $1,000,000 if the insured suffers from a covered critical illness.4 It covers a heart attack, stroke, major organ transplant, paralysis, diagnosis of Amyotrophic Lateral Sclerosis (ALS), arteria aneurysms, central nervous system tumors, significant burns, an end-stage renal failure diagnosis and invasive cancer.
If a physician diagnoses you with a terminal illness that results in a life expectancy of less than 24 months, this rider allows the acceleration of up to 100% of the policy’s death benefit, not to exceed $1,000,000.
This rider may accelerate up to 25%7 of your policy’s death benefit if the primary insured is certified by a licensed health care practitioner in the previous 12 months as having a qualifying chronic illness. A qualified chronic illness is defined as being unable to perform two out of the six activities of daily living (ADLs) or requiring supervision because of severe cognitive impairment. This rider does not terminate after the initial acceleration.8 Subsequent annual accelerations are available, upon continued qualification, until you accelerate either 100% of the death benefit or the lifetime maximum of $1,000,000.
The accelerated amount is paid prior to death, so the amount paid will be less than the amount accelerated. The policy death benefit will be reduced by the amount accelerated.
How do living benefits work?
Let’s look at an example of each kind of living benefit, or accelerated death benefit.
Critical illness rider
Jeffrey | Issue age: 40
Jeffrey purchases an F&G life insurance policy and at age 68, is diagnosed with invasive cancer. His F&G life insurance policy includes a benefit for critical illness. He chooses to exercise part of his death benefit through the critical illness rider to help cover expenses while he continues treatment.
Let’s take a look at the potential benefit he receives:
- Base policy death benefit = $400,000
- Cash surrender value = $48,849
- Jeffrey accelerates 90% of his death benefit, or $360,000
- Jeffrey receives a benefit amount of $228,622.25
- After accelerating 90% of the available death benefit, Jeffrey’s remaining death benefit is $40,000 and his cash surrender value is $4,884.90
The benefit amount is determined by the severity of his illness and the impact on future life expectancy and is reduced by an administrative fee and an actuarial discount as outlined in the rider. Hypothetical assumptions based on issue age 40, initial face amount $400,000 at issue level death benefit, critical illness of lung cancer severity level three. Jeffrey exercised 90% of benefit at age 68. If your client chooses to accelerate the critical illness rider, both the terminal illness and chronic illness riders terminate.
Terminal illness rider
Mary | Issue age: 50
Mary purchases an F&G life insurance policy and at age 70, is diagnosed as having a life expectancy of 24 months or less. She included the terminal illness living benefit rider as a supplement to her F&G life insurance policy. So, she decides to use a portion of it to enjoy life with her family.
Let’s take a look at the potential benefit she receives:
- Base policy death benefit = $300,000
- Cash surrender value = $50,042
- Mary accelerates 90% of her death benefit, or $270,000
- Mary receives a benefit amount of $221,129.36
- After accelerating 90% of the available death benefit, Mary’s remaining death benefit is $30,000 and her cash surrender value is $5,004
The benefit amount is reduced by an administrative fee and an actuarial discount as outlined in the rider. Hypothetical assumptions based on issue age 50, initial face amount $300,000 at issue level death benefit, Terminal illness occurred at age 71 and Mary exercised 90% of benefit. If your client chooses to accelerate the terminal illness rider, both the critical illness and chronic illness riders terminate.
Chronic illness rider
Sue | Issue age: 35
Sue purchases an F&G life insurance policy and at age 70 is diagnosed by a licensed health care practitioner with a chronic illness. She decides to accelerate a part of her death benefit through F&G’s chronic illness rider to help pay for the cost of her care.
Let’s take a look at the potential benefit she receives:
- Base policy total death benefit = $500,000
- Cash surrender value = $365,883
- Sue accelerates 25% of her death benefit, or $125,000
- Sue receives a benefit amount of $97,175
- Her remaining death benefit is $375,000 and the remaining cash surrender value is $274,412
- If Sue continues to qualify for chronic illness benefits under this rider, she can accelerate up to 25% of the remaining eligible death benefit, or $375,000.
The benefit amount is reduced by an administrative fee and an actuarial discount as outlined in the rider. Hypothetical assumptions based on issue age 35, initial face amount $500,000 at issue level death benefit, Chronic illness occurred at age 70 and Sue exercised 25% of the benefit. If your client chooses to accelerate the chronic illness rider, both the critical illness and terminal illness riders terminate.
Accelerated living benefit riders9 give you access to your death benefit as part of your life insurance contract during different times of your life. It’s important for you to understand how these benefits work and the value they provide for life’s “what-ifs.”
Be sure to discuss your specific situation with a financial or insurance professional to help determine the suitable alternatives for your goals and needs.
Talk with your financial and insurance professional today to see how living benefits could help you and your personal situation.
1The index options are linked to a market index, but you are not investing directly in the stock market or any index. We protect you from the downside risk, and you are guaranteed not to lose money due to market declines.
2Note that the amount of your withdrawal may be limited in order to keep the policy in effect.
3The accelerated benefit paid will be based on the age and severity of illness and will be less than the accelerated amount due to receiving the death benefit prior to the death of the insured and the administrative fee. The death benefit will be reduced by the full, accelerated amount. Benefits under these riders are intended to qualify for favorable tax treatment, ultimately these benefits may or may not be taxable. You should seek assistance from your personal tax advisor before exercising this benefit.
4As defined in the rider.
5For the critical illness rider, a covered illness must first occur on or after the effective date of the rider. If you choose to accelerate the critical illness rider, both the terminal illness and chronic illness riders terminate.
6The rider is not available when the insured life is rated higher than table 4 or if there is a flat extra rating per $1,000.
7The 25% annual limit does not apply in California.
8This rider will terminate when the accelerated amount is 100% of the death benefit or the lifetime maximum of $1,000,000.
9No additional premium is required for these riders. Terminal illness, chronic illness and critical illness riders are available on cases approved at table 4 or better rates. Policies issued with flat extra will not include these riders.