Life insurance can be pretty straight forward. You pay a regular premium and if you die during that term, a death benefit is paid to your beneficiary. We usually see this in the case of term life insurance and as the death benefit part of whole life and permanent life insurance products.
But life is not always straight forward.What if you need your life insurance product to help cover situations unforeseen when life does not go as planned?
For instance, what if you incur something catastrophic, i.e., a terminal illness, serious injury or debilitating situation where you find yourself needing access to the cash value?
This is usually seen in the form of a living benefits rider, also known as an accelerated death benefits rider added to your new or existing life insurance policy.
Some carriers will include this rider while other will provide it as an optional addition to your current policy.
Restrictions
Before you add this living benefits rider, you'll want to make sure you understand the restrictions that apply to your policy since not all insurance carriers are the same. You'll want to know what amount of the death benefit you can access and the timeframe it will take to access it. You'll also want to know what your carrier will do with the remaining unused amount of the death benefit.
There will also be requirements you'll need to satisfy for your insurance carrier to determine the payout of the living benefits, e.g., life expectancy and supporting documentation of your situation will need to be taken into account.
Again, not all insurance carriers are the same and each will have conditions you'll need to meet before accessing your benefits.
Taxes
As seen across many other financial investment products, early withdrawal of funds is usually taxed. With a life insurance living benefits rider added to your policy, federal government income tax does not apply to the proceeds you would receive if you were to take advantage of accessing funds.
However, just because Uncle Sam may not take a piece of your protective pie, depending on where you live, your state may impose income tax on the payout.
You'll want to know ahead of time whether this applies to you, and since we live in Texas and without a state income tax, you would receive your accelerated payout tax-free.
Fees
As it is in most cases, fees will apply for any type of administration of your policy and it is the same for accessing living benefits. Your insurance carrier will have fees associated with the early withdrawal of these funds and you'll want to make sure you have a good knowledge of what the fees are and why they are being charged.
Not only are you dealing with the accelerated access to living benefits, e.g., for help at home during your illness, specialized equipment or even a bucket-list trip for you and loved ones, you also have to take into account the remainder of the death benefit you'll want to leave behind for said loved ones.
We Can Help
This is definitely not our favorite topic. At Insurance For Texans, we have families and the thought of having to access these funds is heartbreaking. However, we also know we're in the business of making sure rainy days are manageable and that's why we're here for you. We will talk through the options, explain the features and even uncover some of the other advantages of this type of addition to your policy.
This type of coverage is worth talking about. Send us an email, text, phone call or drop in to say "hello" if you're in the area. We're always ready to talk about your coverage.
