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Living Benefits: A Key Element of Family Systemic Risk Management

Living benefits can be included as part of a life insurance policy or purchased separately as an additional rider.

Living benefits allow you to access a portion of your death benefit while you’re alive, specifically if you face a critical illness, chronic illness, or terminal illness.

This money can be used for medical expenses, lost income, long-term care, or anything else you need.

Living benefits may be incorporated into a life insurance policy or acquired separately as an additional rider. These benefits enable policyholders to utilize a portion of their death benefit while still living, particularly in the event of a critical, chronic, or terminal illness. The funds accessed can be allocated towards medical expenses, loss of income, long-term care, or any other necessary expenditures.

  • Exploring Living Benefits: Practical Uses in Family Systemic Risk Management
  • 1. Chronic Illness Rider

Many people think that their home or their investment portfolio is their biggest asset. In reality, their earning potential is usually their most important asset.

  • Description: Provides benefits if the policyholder is unable to perform two out of six activities of daily living (ADLs) such as bathing, dressing, eating, transferring, toileting, or continence, or if they require substantial supervision due to a severe cognitive impairment.
  • Usefulness: Helps cover the costs of long-term care, home health care, or assisted living facilities, reducing the financial burden on the policyholder and their family.
  • 2. Critical Illness Rider
  • The benefit is unrestricted, meaning it can be used for any purpose once you qualify.
  • Common uses include, but are not limited to:
  • Household expenses
  • Adult Day Care
  • Home modifications
  • Regular bills
  • Nursing home care
  • Quality of life expenditures
  • Description: : Pays a lump sum or periodic payments if the policyholder is diagnosed with a critical illness such as cancer, heart attack, stroke, kidney failure, or major organ transplant.
  • Usefulness: Provides funds to cover medical expenses, experimental treatments, travel for specialized care, or to replace lost income during recovery.
  • 3. Terminal Illness Rider

The benefit is designed to provide financial flexibility during challenging times.
It can alleviate the financial burden associated with serious health conditions by providing access to funds while the policyholder is still alive.

  • Description: Allows the policyholder to access a portion of the death benefit if they are diagnosed with a terminal illness and have a life expectancy of 12 to 24 months, depending on the policy.
  • Usefulness: Helps with end-of-life expenses, medical bills, hospice care, or fulfilling final wishes, ensuring peace of mind and financial stability.

Everything from paying your mortgage to saving for a child’s college education depends on your ability to earn money from your job. The lost income from a serious illness or injury that prevents you from working can be substantial.

Sadly, half of working Americans (49%) couldn’t make it six months before financial difficulties would set in—and 11% said they would have problems immediately, according to the 2022 Insurance Barometer Study by Life Happens and LIMRA. An already unfortunate situation is often compounded by hefty medical bills that pile up on top of everyday expenses.

Financial hardship from an injury or illness could lead you to burn through your savings, sacrifice your quality of life or even lose your home.

One of the best ways to protect your future earning potential and keep you and your family on solid financial ground is through a disability insurance policy.

Disability insurance steps in to help you cover expenses; it pays you a percentage of your salary if an illness or injury prevents you from working. Depending on your policy, disability insurance covers your lost income for anywhere for a few weeks to your entire working life.

You most likely purchase auto insurance, homeowners insurance and maybe life insurance to protect yourself and the ones you love. Like each of these coverage options, disability insurance should be a part of your overall financial plan.

The main ways to get disability insurance are through your employer which has many limitations or through an insurance company that can meet your needs.

  • 4. Long-Term Care Rider
  • Description: Provides benefits if the policyholder requires long-term care services due to a chronic illness or disability. This rider often overlaps with chronic illness riders but is specifically geared towards long-term care needs.
  • Usefulness: Covers costs associated with long-term care services, such as nursing home care, home health care, or assisted living, preserving the policyholder's savings and assets.
  • 5. Disability Income Rider
  • Description: : Provides a regular income if the policyholder becomes disabled and is unable to work. This rider may be included in some life insurance policies or available as an add-on.
  • Usefulness: Replaces a portion of the policyholder's income, helping them maintain their standard of living, pay bills, and meet financial obligations during a period of disability.
  • Wages
  • A salary
  • Tips
  • Net income from self employment
  • Other taxable employee compensation like bonuses and commissions

There are disability insurance policies tailored for those in specific professions, including medical professionals, as well as for those who are self-employed. Those who work for an employer may get disability insurance through their workplace, but the key is to check to see if it would be enough if something happened.

  • 6. Accelerated Death Benefit Rider

There are two main types of disability insurance:

  • Description: replaces a percentage of your lost income for a brief amount of time—typically, between three to six months. Many short-term disability policies are automatically offered by employers as a benefit to their employees.
  • Usefulness: Offers financial support for medical treatments, debt repayment, or other expenses, easing the financial strain during a difficult time.
  • 7. Waiver of Premium Rider
  • Description:Waives the policy's premium payments if the policyholder becomes disabled and is unable to work for a certain period, typically six months or more.
  • Usefulness: Ensures that the life insurance policy remains in force without the policyholder having to worry about making premium payments during a period of disability.
  • 8. Return of Premium Rider
  • Description:Returns all or a portion of the premiums paid if the policyholder outlives the term of the policy or cancels it.
  • Usefulness: Provides a form of savings, as the policyholder can receive a lump sum return of premiums, which can be used for any purpose.
  • Common Examples of Usefulness
  • Medical Expenses: John, diagnosed with terminal cancer, uses the terminal illness rider to access a portion of his death benefit to cover experimental treatments not covered by insurance.
  • Long-Term Care: Mary, unable to perform daily activities due to Alzheimer's, utilizes the chronic illness rider to pay for a home health aide, allowing her to remain in her home.
  • Income Replacement: Tom, disabled after a car accident, benefits from the disability income rider, which provides monthly payments that replace his lost income.
  • Premium Relief: Susan, diagnosed with a debilitating condition, takes advantage of the waiver of premium rider, ensuring her life insurance policy remains active without additional premium payments.

These living benefits provide essential financial support, helping policyholders manage unexpected health issues and maintain their quality of life.

  • Creative Uses of Life Insurance Living Benefits

Life insurance living benefits offer policyholders significant flexibility in addressing various financial needs beyond their primary purpose. Here are some creative ways people can use these benefits:

  • 1. Funding a New Business Venture
  • Scenario: Jane, diagnosed with a chronic illness, uses her chronic illness rider to access a portion of her death benefit.
  • Creative Use: She uses the funds to start an online business, allowing her to work from home and create a new income stream despite her health condition.
  • 2. Pursuing Education or Retraining
  • Scenario: Mike suffers a heart attack and activates his critical illness rider to access a portion of his death benefit.
  • Creative Use: With his career in physical labor now compromised, Mike uses the funds to go back to school and retrain for a less physically demanding job in IT.
  • 3. Paying Off Debt
  • Scenario: Lisa, diagnosed with terminal cancer, uses her terminal illness rider to access part of her death benefit.
  • Creative Use: She pays off her mortgage and other debts to ensure her family is debt-free after her passing, alleviating financial stress for her loved ones.
  • 4. Making a Significant Donation
  • Scenario: Mary, diagnosed with a terminal illness, activates her terminal illness rider.
  • Creative Use: She takes her family on a dream vacation to create lasting memories together, fulfilling a long-held wish to travel to Europe.
  • 5. Taking a Dream Vacation
  • Scenario: David is diagnosed with a terminal illness and accesses his accelerated death benefit.
  • Creative Use: He makes a substantial donation to his favorite charity, supporting a cause he cares about while he's still alive to see the impact.
  • 6. Creating a Legacy Project
  • Scenario: Tom, diagnosed with a chronic illness, accesses his chronic illness rider.
  • Creative Use: : He starts a community garden project in his neighborhood, leaving a lasting positive impact on his community and providing a peaceful place for residents to enjoy.
  • 7. Investing in Property or Real Estate
  • Scenario: Sarah uses her critical illness rider after being diagnosed with cancer.
  • Creative Use: She invests in a rental property, creating a passive income stream for her family and securing financial stability for the future.
  • 8. Supporting a Child’s Education
  • Scenario: John, diagnosed with a chronic illness, uses his chronic illness rider.
  • Creative Use: He sets up a college fund for his children, ensuring they have the resources for higher education even if he's no longer able to provide for them.
  • 9. Covering Adoption Expenses
  • Scenario: : Anna, diagnosed with a critical illness, accesses her rider.
  • Creative Use: She uses the funds to cover the expenses of adopting a child, fulfilling her dream of becoming a parent despite her health challenges.
  • 10. Home Modifications for Accessibility
  • Scenario: Mark, who has developed a severe disability, uses his disability income rider.
  • Creative Use: He renovates his home to make it wheelchair accessible, improving his quality of life and independence.
  • 11. Paying for a Wedding
  • Scenario: Emily, diagnosed with a terminal illness, uses her terminal illness rider.
  • Creative Use: : She helps pay for her daughter's wedding, ensuring a memorable and joyous occasion for her family.
  • 12. Building an Emergency Fund
  • Scenario: Steve, after a major surgery, uses his critical illness rider.
  • Creative Use: He sets aside a portion of the funds in an emergency savings account, providing financial security for unexpected future expenses.

These examples demonstrate how life insurance living benefits can be used creatively to enhance the quality of life, fulfil personal dreams, and provide financial security in various situations.

  • Supporting Business with Life Insurance Living Benefits

Using life insurance living benefits to support a business or business partner can be a strategic way to maintain business stability and continuity during challenging times. Here are some ways to creatively use these benefits to help a business:

  • 1. Covering Key Person Expenses
  • Scenario: A key executive or partner in a business is diagnosed with a critical illness.
  • Creative Use: Use the critical illness rider to access a portion of the death benefit to cover the salary of a temporary replacement or to hire a consultant to ensure the business continues to operate smoothly.
  • 2. Funding Business Continuity Plans
  • Scenario: A business owner is diagnosed with a chronic illness and unable to manage day-to-day operations.
  • Creative Use: A business owner is diagnosed with a chronic illness and unable to manage day-to-day operations.
  • 3. Securing Business Loans
  • Scenario: A business owner needs to secure a loan for expansion or to cover unexpected expenses due to a partner’s illness.
  • Creative Use: Use the accelerated death benefit rider to access funds that can be used as collateral for securing business loans, thus providing the business with necessary capital without needing to liquidate assets.
  • 4. Buying Out a Partner’s Shares
  • Scenario: A business partner is diagnosed with a terminal illness and wants to ensure their family is financially secure.
  • Creative Use: Use the terminal illness rider to access funds to buy out the partner’s shares, providing them with financial resources while ensuring a smooth transition of ownership and business continuity.
  • 5. Covering Operational Costs
  • Scenario: A key employee or business owner becomes disabled and the business faces financial strain.
  • Creative Use: Use the disability income rider to cover operational costs such as payroll, rent, utilities, and other essential expenses, helping the business stay afloat during the transition period.
  • 6. Paying Off Business Debt
  • Scenario: A business owner is diagnosed with a chronic illness and wants to reduce the financial burden on the business.
  • Creative Use: Use the chronic illness rider to access funds to pay off business debts, such as loans or credit lines, reducing financial pressure and improving the business’s cash flow.
  • 7. Funding Employee Benefits or Bonuses
  • Scenario: A business owner or key employee is diagnosed with a critical illness.
  • Creative Use: Use the critical illness rider to access funds to provide bonuses or enhanced benefits to employees, maintaining morale and loyalty during a challenging period.
  • 8. Investing in Business Growth
  • Scenario: A business owner, diagnosed with a chronic illness, wants to ensure the business continues to grow.
  • Creative Use: Use the chronic illness rider to access funds for investing in new equipment, marketing, or research and development, ensuring the business can continue to innovate and expand.
  • 9. Ensuring Key Employee Retention
  • Scenario: A key employee is diagnosed with a serious illness.
  • Creative Use: Use the critical illness rider to access funds to offer key employees retention bonuses, ensuring they stay with the company and contribute to its stability during uncertain times.
  • 10. Covering Legal and Administrative Costs
  • Scenario: A business owner or key executive is diagnosed with a terminal illness, leading to potential legal and administrative challenges.
  • Creative Use: Use the terminal illness rider to cover legal fees, succession planning costs, and other administrative expenses, ensuring a smooth transition and minimizing disruptions.
  • 11. Funding Business Succession Planning
  • Scenario: A business owner wants to ensure a smooth transition in case of a serious illness or disability.
  • Creative Use: Use the accelerated death benefit rider to fund succession planning activities, including hiring consultants, drafting legal documents, and training potential successors.
  • 12. Maintaining Cash Flow During Personal Health Crisis
  • Scenario: The business owner is diagnosed with a critical illness, impacting their ability to generate income.
  • Creative Use: Use the critical illness rider to access funds to maintain cash flow, ensuring the business can continue to operate and pay its obligations without interruption.

By strategically utilizing life insurance living benefits, business owners can protect their enterprises, support their partners and employees, and ensure business continuity during times of personal health crises.

 

“We strongly believe in what we term Family Systemic Risk Management. This approach combines living benefits and tax-deferred income, ensuring that when the insured passes away, they leave behind a financial legacy.” Dallas Strickland

How much disability insurance do I need?

  • Add up all your monthly living expenses.

Keep in mind that some expenses may go down if you can’t work. These can include expenses for commuting, a professional wardrobe and meals out. Important expenses to include in this total are:

  • Rent or mortgage
  • Groceries
  • Health insurance and health care expenses
  • Utilities
  • Car expenses like auto payments, auto insurance, gas and car maintenance
  • Food and groceries
  • Childcare and/or education expenses
  • Household maintenance like cleaning and upkeep
  • Subscriptions and memberships
  • Entertainment
  • Travel and leisure expenses
  • Clothing expenses
  • Savings, investment and retirement contributions
  • Debt payments for student loans, personal loans and credit card debt
  • Charitable contributions
  • How much does disability insurance cost?

As a general rule of thumb, an individual long term disability insurance costs about 1% to 3% of your annual salary. Here are some examples.

Example: Salary $30,000 – DI yearly cost $300-$900 – monthly payment $250-$75

Example: Salary $100,000 – DI yearly cost $1,000-$2500 – monthly payments $83 – $250

Example: Salery $200,000 – DI yearly cost $2000-$6000 – monthly payments $166-$500

How should I get disability insurance?

  • Through Your Employer
  • There are often coverage limitations that might prevent you from replacing the amount of lost income that you’d need to be OK financially You lose the coverage if you leave or are terminated from your job.
  • Through a Professional Organization

A con is that the professional organization may choose to stop offering the coverage at any time, which would terminate your disability insurance. You would also lose coverage if you change professions or leave the professional organization.

  • Through the Government

There are three main ways to receive disability benefits from the government:

  • Workers Compensation. Every state has their own Workers Compensation laws that employers must follow. Workers Compensation covers some (but not all) of your lost income if you suffered an injury on the job or developed an illness or disease because of your job. This coverage can be provided by your state or through a private company. Pros to Workers Compensation are that it’s automatically offered to you free of charge. Cons are that it only covers work-related injuries and illnesses and it may not be enough to cover your lost income.
  • State disability insurance programs. Five states—California, Hawaii, New Jersey, New York and Rhode Island—and Puerto Rico offer short term disability insurance. It covers a portion of your income for about four to six months and is paid for through a payroll deduction.
  • On Your Own

One of the best ways to get disability insurance is to buy it on your own. This lets you get the exact amount of coverage you need and lets you compare coverage and prices from a variety of insurance companies.

Plus, you don’t need to worry about losing coverage if you change jobs or leave a particular professional organization. Your best bet is to work with a licensed insurance agent to learn about your options and get a disability insurance quote. He or she can help tailor coverage to your exact needs as well.

  • Learn more and get a term life insurance quote that fits your family needs.

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