In the classic rock song “Riders on the Storm,” Jim Morrison sings, “The world on you depends; our life will never end.” And while our loved ones do depend on us, we all know our years will end. With that in mind, many people see the need for a permanent insurance policy to protect their loved ones. But sometimes insurance policies have other benefits for the owner of the policy.
What if a “storm” of another kind strikes? Think of someone diagnosed with a terminal illness; a family becomes financially strapped. What then?
Some insurance companies add an accelerated benefit rider (ABR) to policies to provide benefits such as critical illness care (similar to an accelerated payout for a nursing home stay). Policyholders aren’t always aware of this or don’t know to ask their financial advisor. The State of New York has been slow to permit much of this. That’s because New York wants to be sure companies aren’t using riders to reduce liability (e.g., charging high interest rates on the accelerated payout). But ABRs do add a layer of value to an insurance policy. These riders can benefit people who have insurance, but don’t often have long-term care insurance or money saved beyond their retirement funds.
Should you pay for an ABR, or have the insurer deduct its costs and fee from the benefit?
Most companies do not charge for the rider, but they may attach an interest rate to the benefit. If, for example, you have a $200,000 policy and the insurer pays you $100,000, then the insurer would charge a nominal interest rate deducted from the remaining death benefit.
Why would someone object to having an ABR on their policy?
There is no reason, unless the insured was paying for the rider along the way. If the ABR costs nothing, but is there if you qualify and need the money, it is all good. Ultimately, it’s something the insured would elect to have paid out.
How common is it to use an ABR for a terminal illness?
It would be more common if people understood their policy had it. If the insured or his or her family doesn’t need the money, then they wouldn’t enact the rider. If they were facing an illness and racking up big expenses, then they could likely use the benefit.
How does an ABR differ from a viatical settlement?
With an ABR you receive payment from your insurance company for some or all of your death benefit. But, you can leave a percentage for your beneficiary. With a viatical settlement, a viatical company will buy your life insurance policy and pay you a percentage of your benefit upon request. The company will then pay your remaining premiums and become the beneficiary of your policy.
Whether you ever choose to use an ABR is your decision. But it’s important to know that an option exists should you face an unexpected storm.
Do you have questions I haven’t answered? Contact me at [email protected].