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by Indiana Farm Bureau Insurance

Life insurance – chronic illness accelerated death benefit

  • John Selky, Life Product and Marketing Consultant
    John Selky, Life Product and Marketing Consultant  | Apr 13, 2022
    Social Profile | LinkedIn
Older couple hugging on a deck outside

Choosing an insurance company to purchase your life policy from can be a tedious process. Reviewing the coverage and policy options regarding an event you don’t like to think about is challenging. Rather than thinking of purchasing life insurance as a chore, think of it as an opportunity to choose the outcome if the unexpected were to happen.  


What is an accelerated death benefit? 


An accelerated death benefit is best described as a living benefit that provides someone the opportunity to utilize their life insurance policy when they need it the most. This means that someone doesn’t necessarily have to pass away to benefit from their life insurance policy.  

An accelerated death benefit provision allows someone who is diagnosed as terminally or chronically ill to receive the death benefit (accelerated) early to utilize the proceeds however they want or need.       


Types of accelerated death benefits 


Indiana Farm Bureau Insurance
provides two types of accelerated death benefits: 

  1. Terminal illness, which is inherent in all our life policies.  

  • If the insured is diagnosed by a licensed physician as being terminally ill with 12 months or less to live, the owner can elect to receive nearly the full death benefit as a lump sum income tax free. There is no additional premium charged for this accelerated benefit rider. 

 

  1. Chronic illness rider – At the time of the life insurance application, an individual can add this benefit to their life insurance policy for additional premium. This serves as an additional life insurance benefit. 

 

  • This rider will allow the insurance company to accelerate a portion of the policy’s face amount if, within the last 12 months, the insured is chronically ill for a period of at least 90 consecutive days as certified by a licensed health care practitioner.  

  • The benefit is payable as a yearly installment in a lump sum amount. Annual benefit payments are equal to an amount of at least 12%, but not more than 24%, of the original policy face amount. 

  • The insured can utilize the lump sum distribution for whatever need, expense or personal use they desire, there is no bill submission required.    

  • The benefit amount can be altered by the owner at the beginning of each benefit period. The maximum lifetime benefits cannot exceed 90% of the original face amount. 

The accelerated death benefit changes how we view life insurance 

 

The chronic illness accelerated death benefit of a life insurance policy has altered people’s perception of life insurance. We no longer have to think of life insurance as necessary to protect your family just in the event of your premature death. Now, we can highlight the advantages of receiving the benefit before death. 

 

Now, as insurance professionals, we advise clients to consider what steps you’ve taken to protect your retirement income and have you adequately prepared for the financial loss resulting from a chronic illness. 

 

  • Are you aware that 63% of adults above the age of 65 have two or more chronic conditions?

  • 75% of U.S. health care spending is a result of chronic illness care?2  

  • 86% of the nation’s $2.7 trillion annual health care expenditures are for people with chronic and mental health conditions?

  • 65.7 million informal and family caregivers provide care to someone who is ill, has a disability or aged in the U.S.4 

  • 14.9 million people care for someone who has Alzheimer’s or other forms of dementia.5 

 

Knowing that almost two thirds of adults above the age of 65 have two or more chronic conditions is what compels us to ask our clients, “What steps have you taken to protect yourself from the financial loss due to chronic illness?” 

 

The truth is that most people are not aware that life insurance can assist them with death and chronic illness protection!  

 

A story close to home 

 

This is a story of how the chronic illness accelerated death benefit rider was impactful to one specific family. 

 

John and Sue had been married for 58 years. They raised a wonderful family together, three girls and one boy. Sue was a tremendously successful occupational therapist, mother and wife. John was a successful business professional. Together they worked for 38 years and then retired. They were financially comfortable and enjoyed their retirement.  

 

At age 78, John began to show signs of dementia and by age 80 he was diagnosed by a licensed health care practitioner with Alzheimer's.  

 

Sue wanted to care for her beloved husband and chose to become one of the 14.9 million informal caregivers in our country today. By age 81, John required 24/7 observation and Sue was not able to leave John by himself for any period of time.  

 

The never-ending stress and care that was required was physically and emotionally draining on Sue. Regardless of the toll it was taking on her, she did not want to move her husband to a long-term care facility.  

 

That is when her insurance agent called and asked if he could come out to see her. He had information to share with Sue that would help her situation. 

 

The agent told Sue that on the last life insurance policy John purchased as an “inheritance for their children,” he also added the chronic illness benefit.  

 

The agent shared that because of this, Sue could bring in a health care professional to help her care for John a few days a week. This would give Sue freedom to leave and run errands, visit a friend, go to a local coffee shop or read a book and get back a few moments of her own. 

 

The relief in Sue’s face was a picture the agent would never forget. John had been diagnosed and certified by a licensed health care practitioner for more than 90 days, the agent completed the claims paperwork with Sue and eight days later he was able to deliver an income tax free $23,800 check ($100,000 life policy x 24% - $200 administration fee). The agent reminded Sue that over there was $66,000 more dollars over the next three years that Sue could and would receive!* 

 

Her agent also reminded her that she could use the money for any need that might arise. Sue now had a lump sum check placed in her bank account and the peace of mind knowing she had enough money to help her and John without negatively affecting their savings, all because of what John did before he was diagnosed. 

 

The impact of this story is what the chronic illness rider can provide to a caregiver. It gave Sue time back in her life, and she was still able to do what she wanted to do, which was to take care of her husband.      

 

Who is eligible for the accelerated death benefit? 

 

Eligibility for the accelerated death benefit is determined when the application for the life insurance policy is applied for. Underwriting is required to determine if an individual’s health qualifies for both the life insurance policy and the chronic illness benefit coverage.  

 

How to file a  life claim? 

 

The claim process is simple and straightforward. To claim benefits under the chronic illness accelerated death benefit rider, the owner must send a completed claim form to our home office, 225 S. East St. Indianapolis, Indiana 46202. Upon receipt and proof of meeting the requirements, the benefit will be paid to the owner of the contract based upon the amount selected, 12-24% of the initial death benefit. An election and claim form must be submitted each year. 

 

The most valuable portions of the claim process are that: 

 

  • The proceeds are received as a single lump sum distribution.  

  • It can be utilized for whatever need, expense or personal use the insured desires. 

  • There is no bill submission required.  

  • The accelerated death benefit proceeds are income tax free.   

 

Not only can life insurance protect your family in the event of death, but it can also provide income in the event of chronic illness. If you think it is too early or too late to purchase a life insurance policy, you may be mistaken. There is never a wrong time to protect your future. 

 

Indiana Farm Bureau Insurance offers various types of policies that can be tailored to meet your specific situation and needs. 

 

Find your local insurance agent who will help walk you through the process of finding the right coverage or simply request a free life insurance quote online to start the process today!  

 

 

1 Centers for Disease Control and Prevention. Leading causes of death and numbers of deaths, by sex, race, and Hispanic origin: United States, 1980 and 2014 (Table 19). Health Assessed July 26, 2018. 

2 U.S. Department of Health. Chronic Disease and Injury in Indiana. 2012.  

3 National Alliance for Caregiving (www.caregiving.org) and AARP (www.aarp.org). Caregiving in the U.S. 2015 Report.  

4 Gerteis J., Izrael D., Deitz D., LeRoy L., Ricciardi., Miller T., Basu J. Multiple Chronic Conditions Chartbook. AHRQ Publications No. Q14-0038. Rockville, MD.  

5 National Alliance for Caregiving (www.caregiving.org) and AARP (www.aarp.org). Caregiving in the U.S. 2015 Report.  

 

*Numbers and percentages will vary by policy