What Is a Life Insurance Terminal Illness Benefit?

 A life insurance terminal illness benefit or accelerated death benefit can help financially support you and your family when someone has been diagnosed with a terminal illness. This benefit allows you to access all or a portion of the policy’s cash value prior to death, which could ease stressful burdens associated with costs for end-of-life care. This supplemental benefit may also be called “living benefits” or “terminal illness rider.” It is important to note that these types of benefits are not included in every policy; you may need to select it as an additional option and/or pay an extra fee.

If you already have life insurance, contact your agent or company to find out if your current policy has this type of benefit. If not, inquire whether it can be added now, if needed, or later if you are planning for unforeseen circumstances. There is never an obligation to make any claim while the covered person is still alive, but it may bring comfort to know that this option is available.

If you or a loved one has recently been diagnosed with a terminal illness and do not already own a life insurance policy, you may still be able to obtain one. A guaranteed life insurance policy is considered an alternative plan for those with significant health issues, including terminal illness. These types of policies provide smaller death benefits that help families pay for funeral or burial expenses. They do not, however, include the terminal illness benefit or cash value. It will be more expensive to secure this type of policy, but worth a call to companies if you think it may still be beneficial.

How terminal illness benefits work

• You must first qualify to receive benefits based on a confirmed medical prognosis of less than 6 months to live and the specific policy coverage
• If qualified, the benefit allows access to either a portion or all of the policy’s cash value in advance of your death based upon what your policy grants
• Depending upon how much of the total sum is paid to you up front, a lesser amount or none at all will be dispersed of the policy after death
• Benefits paid out to a terminally ill person are not taxed as income
• If it is a joint insurance policy, this type of benefit coverage is generally paid only once, but it can be utilized by either of the insured, as warranted.
• If the policy is due to expire before the person is expected to die, the company could refuse any claim for terminal illness benefits made within the final months of the policy’s active term. The family would then receive full sum of the policy upon their death.

We recommend that you call your insurance company to verify how your particular coverage applies to these benefits. 

Without a terminal illness benefit, you may be able to borrow against your life insurance policy. You can only do so if you have a whole life or universal life insurance type of policy, as these policies gain cash value. Term life insurance policies do not qualify. Any amount borrowed will reduce the overall death benefit. The loan will also accrue interest over time. Contact your agent or insurance company to initiate an application if you have had the policy long enough to amass a cash value to borrow against. You may also wish to review some key factors involved in borrowing against a policy before taking out the loan. 

Sources
“What Is an Accelerated Death Benefit in Life Insurance?” Investopedia. https://www.investopedia.com/terms/a/accelerated_death_benefit.asp 

“Guaranteed Issue Life Insurance: Pros and Cons”. Forbes Advisor. https://www.forbes.com/advisor/life-insurance/guaranteed-life-insurance/. 

“Meaning, Types & Benefits” Forbes Advisor. https://www.forbes.com/advisor/in/life-insurance/whole-life-insurance/ 

“What Is Universal Life Insurance?” Forbes Advisor. https://www.forbes.com/advisor/life-insurance/universal-life-insurance/

“What Is Term Life Insurance?” Forbes Advisor. https://www.forbes.com/advisor/life-insurance/choosing-the-right-term-life-insurance/

“How Can I Borrow Money From My Life Insurance Policy?” Forbes Advisor. https://www.forbes.com/advisor/life-insurance/dangers-of-policy-loans/