The Living Dead; How to use life insurance death benefit while alive

The age old whole life vs term life insurance battle wages on. In my tenure as a financial advisor I have heard passionate arguments against both camps alike. Those who champion term life insurance point towards the more affordable premiums and higher death benefits as the winning design. The whole lifer’s would argue that the temporary nature and lack of secondary benefits (paid up additions, cash value, tax free interest) make the latter type of policies a waste of money.

My response is always the same, both types of policies can be a great fit for those who find their benefits valuable enough to satisfy their concerns, with the understanding of any possible shortcomings said policy has. The industry response however is to innovate. Finding middle ground and combining the desired aspects of both types of policies is the industry’s attempt at capturing the business of those who are to dissuaded by one or the other. Living Benefit riders available on select renewable and non-renewable term policies are a widely ignored and inexpensive way of enjoying such innovations as a consumer.

The truth is 8/10 term life insurance policies will NOT pay out during the contract period. This is a great thing, it means you outlived your coverage. But many also see this as a waste of funds. In addition, 2/3 Americans will experience either a Critical or Chronic illness during their lifetime. This means coverage for adverse health events is more likely to be used during your pre-retirement years than coverage for life ending events.

Although ironic by name, Living Benefits are attachments of coverage that would allow DEATH benefit claims to be disbursed while the insured is still LIVING. These are not your grandmama’s life insurance policies! With a living benefit rider on a term policy, an insured who experiences a Critical, Chronic, or Terminal illness can actually submit a claim to receive death benefit proceeds upon diagnosis, again while they are still living. The amount of proceeds available are generally up to 90% of the total death benefit of the policy, depending on the severity of the diagnosis. The best part is that such an expansion comes at a modest increase in premium. On average the difference in monthly premium with a policy with these riders vs one without is about $8-$25 more per payment. It is in my experience that the average consumer has never heard of such options and once given the chance, usually finds the value of such enhanced coverage to be more than worth the cost associated.

This greatly expanded access to the proceeds gives a modern day term policy secondary benefits that give any whole life policy a run for its money. I have personally helped guide clients out of whole life plans into living benefit term life insurance that often increase coverage, decreases premium, and provide significant value in the scenario that one has a health event but does not die.

The key here is that you need to know they exists!