Life Insurance and CoronaVirus Wreckage
Living Benefits Help Prevent CoronaVirus Wreckage isn’t the title to a newly released suspense novel. It’s a very real and very scary financial possibility.
Fortunately, the jury is still out on just how severe this virus will be. We’ve endured and survived a similar threat back in 2009. The H1N1 virus pandemic as it was commonly known back then. Those of us here in the “Living Daily Life and Working it Away” land seem to always get hit the hardest. It doesn’t have to be that way anymore.
The financial product known as life insurance no longer requires you to die to benefit from owning a policy. It used to be considered just a product of love. I guess it still is but now you can show yourself some love as well. In addition to creating a tax free retirement for you it added one more benefit. It helps prevent the wreckage a CoronaVirus can cause if you were to catch it.
The caveat in this rescue scenario is called living benefits. Living benefits is the civilian term. Accelerated death benefit rider is the industry term. Both, permanent life insurance and term life insurance policies have this rider.
Topics on Tap in this Article:
- Life Policies Help Prevent Wreckage
- A Living Benefit Explained
- Annuities Have Living Benefit
- Living Benefit Mechanics
- Let’s Start Making Assumptions
- The CoronaFly in the Ointment
- And On a Closing Note
Life Insurance Helps Prevent CoronaVirus Wreckage
Policies offering Life Insurance coverage have been around longer than anyone alive today. Life policies will soon celebrate their 200th birthday. And the CoronaVirus is about 90 days old. It is quite fortunate something as old as life insurance can help something only 90 days old.
Because of what we know to date one can easily argue living benefits weren’t invented just for the Coronavirus. Only time will tell how bad this problem gets. And, for that matter what kind of lasting impact it will have. I don’t say this just because I’m a life insurance agent but we are lucky to have life insurance.
OK, I got that out of my system. Now let me provide the details why I say that. By the end of this article you’ll see the beauty of life insurance during these sort of events. It can help prevent financial catastrophe if you, and I pray you never do, contract this virus. And if you don’t, it will still turn out good to have a policy in effect. If for no other reason the tax-free retirement it can provide you.
After all, almost all of us know, and most will admit, we should all be saving more for retirement. With any luck it’s a day we all will welcome. To have a nice chunk of change waiting there for you can’t be the worst possible ending. Besides, after working forty years of your life, and surviving who knows how many epidemics, it’s time to treat yourself. If nothing else, at least to a few cold beverages and a comfy recliner!
Living Benefits Explained
Living benefits is another way to say a policy holder does not have to die to access the policy face amount. The industry defines these benefits using three medical classifications.
These classifications are chronic illness, critical illness and terminal illness. Of the three, terminal illness is probably the most well known. Restating it in the vernacular it simply means you only have so long to live.
With this particular type of illness that so long to live is either 24 months or 12 months. The longevity length is determined by the state in which you live.
A chronic illness is defined as a person not being able to perform two of the six activities of daily living (ADLs). These six are bathing, eating, dressing, continence, transferring and toileting.
A critical illness is an illness like cancer or a stroke or a heart attack or coma. Depending on the company the list could cover a total of 18 conditions.
Annuities Have Living Benefits
But, before I continue with life insurance living benefits you should know today’s annuities also include living benefits. The difference is life insurance living benefits are included in the policy as a no cost rider. Annuities on the other hand may charge a premium for this rider.
Regardless, it is important to know that you can be covered even with an annuity. I realize not everyone owns or even wants an annuity. That isn’t the point. The point is if you’re buying an annuity in today’s insurance environment you can get living benefits.
Living Benefits Mechanics
As of this writing, the CoronaVirus has not been declared a chronic, critical or terminal illness. To the people who died from this illness it was terminal. For the rest of us, we must wait for some medical grand poobah, the WHO or CDC for example, to make the classification.
These are the living benefits mechanics. Stated differently this is how they work in the real world.
I will assume three circumstances. Number one, you contract cancer. Second, you have a life insurance policy with a face value of $400.000. Number three, you wish to access the policy for $200,000.
Your doctor must first certify your condition. When that happens you can then apply to your carrier (insurance company) using their procedure(s) and form(s).
You complete their process requesting the $200,000. The insurance company analyzes your form and either approves the full $200,000 or a percentage thereof. This process includes assessing your condition, medical history, mortality and other factors.
The final step is the company presenting an offer. Their offer could be for the entire $200,000 or percentage thereof. The policy holder can either accept or reject the offer.
Let’s Start Making Assumptions
Let’s assume they offer the full $200,000 and you accept. You will receive the check within 5 to 7 business days. You can use the money for any purpose you determine.
Let’s assume you use the money to pay your mortgage. Go ahead. And also assume you use the money to pay for home health care. Go ahead. Let’s assume you use the money to take a vacation. Go ahead.
Assume you don’t have any illness that qualifies for an access of the face value. Let’s say you have the CoronaVirus. Let’s also say you also have $25,000 in your cash value account.
You are able to access this $25,000 via a policy loan. This is a fantastic benefit because your policy is the collateral used to guarantee the loan in the event of your death.
The loan proceeds are tax free and do not have to be declared as income. And this is a huge benefit for someone with an illness. Because, the loan proceeds can also be used for any purpose you determine. This is yet another huge benefit.
The CoronaFly in the Ointment
As of this writing, as mentioned above, CoronaVirus hasn’t been classified as to the type of illness it is. This means the face value of a life insurance policy with living benefits cannot be accessed by a person with the virus. The policy can only be accessed via a policy loan.
This fly in the ointment will be addressed as soon as the virus is classified. And that is my prediction. In the interim, life insurance has you protected in two ways.
The Two Ways You’re Protected:
- 1st – Is the face value. If you die your beneficiary will receive the face amount of the policy. These dollars will be income tax free.
- 2nd – Is the policy loan feature. And if you need money during your illness you can borrow from your policy. The benefit with most insurance loans is the interest rate is below general market rates for personal loans.
And then there is one more associated benefit with most cash value policies. The loan amount still receives the credited interest rate. For example, if the company has a 6% declared rate even your borrowed dollars get credited 6%.
Some companies subtract the interest owed. And only credit the balance to the borrowed funds. The remaining funds in the cash value receive the full 6%. Because either way you still receive money on the borrowed money.
No other investment provides this benefit. A note on the loan proceeds. Imagine you die with an outstanding loan, the insurance company first subtracts the loan amount still due. And then pays the balance to your beneficiary.
The beneficiary will not have to declare the loan proceeds as income and pay a tax. And, the proceeds also pass probate free to the beneficiary. Because it works this way in most states this another gigantic benefit. Because probate costs can reach 35% of the estate.
And On a Closing Note
And on a closing note the life insurance policy I recommend for the best living benefits is Index Universal Life. Because it gives the policy owner a degree of flexibility not found in a term or whole life policy.
Your cash value has an opportunity to grow at a faster rate if structured properly. And, the face amount can also grow at a faster rate. And the idea is to obtain the right policy for you at that time.
DISCLAIMER and DISCLOSURE
The articles on this site are for informational purposes only in regards to life insurance policies and annuity contracts. These articles ARE NOT INTENDED to encourage any person to purchase any type of financial services or investment product. But rather to encourage you to ask questions. So, make sure you
ALWAYS CONSULT WITH A LICENSED AND KNOWLEDGEABLE, COMPETENT PROFESSIONAL
You need the person with whom you consult to have a few years experience. These can be tricky subjects for new agents. And I never want anyone making an uninformed decision. That’s because these decisions can be and are, LIFE CHANGING. So, it is very important that your consultant is fully knowledgeable as to your particular circumstances and/or situations.
Always assume the links you follow, the videos you watch and any forms you fill out can result in me receiving a commission. This is not always the case. But for the purpose of full disclosure you should assume that. Because I am a licensed life and health insurance agent in the State of Nevada. And that’s also why this website is always available.