Many people think life insurance is a good purchase when they have a family and need to protect a spouse or children. In the case of an untimely passing, the death benefit provides the funds to create income, pay for funeral costs, college, pay off debts or fund other worthwhile goals. While all of these things are important, there are many other benefits, some of which may be even more valuable.
The modern form of life insurance has been around since the 1700’s and has changed little over the years. Policy holders pay a premium and in return they get a death benefit. With certain types of permanent life insurance there is also a cash value component. Over the last 20 years some life insurance companies have enhanced their policies to also include options where the death benefit could be paid, or accelerated, to the insured prior to death. These features are called living benefits.
Living benefits can differ between companies, but in general there are three main categories that allow for the acceleration of the death benefit:
- Chronic Illness: typically this benefit is very similar to long term care. If a person qualifies for long term care due to physical health reasons or for cognitive impairment.
- Critical Illness: major health events such as a heart attack, stroke or cancer.
- Terminal Illness: being diagnosed with a terminal illness that will shorten ones life to within the next few years.
As we age the risks we face typically change. When we are starting out in adulthood where things like weddings, new homes, and young children are the focus, the death benefit is most important as it is protecting from the loss of an income. As we age into our 30’s and 40’s the risks that we face change and things that fall into the critical illness category become common occurrences. Chances are, you know several people who have cancer or are survivors. While most of us have health insurance, there are many things it does not cover as it relates to cancer.
For our elder years, the risks change to things such as stroke and assisted living. Again, these living benefits allow a life insurance policy to provide protection in a way where we avoid spending down our retirement assets. The burden of extended care can wipe out a nest egg and place a burden on the rest of the family.
As a kid, Boy Scouts was an important part of my life and I remember my parents getting me a Swiss Army knife. I have used it many times over the years and because it has so many tools it continues to be something that I carry. If done properly, life insurance can be just like my knife and be something that continues to provide value throughout life.