While term life benefits are designed to provide benefits for your family after you die, you can benefit from the policy while you’re still alive if you need to. How? Through a rider.
Let’s say you buy a 20-year term life policy with a death benefit of $250,000. Four years into having the policy you’re diagnosed with a terminal illness and given a life expectancy prognosis of two years. A term life rider would allow you to use some of that $250,000 to help pay for medical bills, hospice, or even a trip to a place on your bucket list. You determine how you want to use it, if at all.
There are four types of term life riders you can add to your term life policy that enable you to use the benefit from your policy while you’re still alive.
Types of Term Life Riders
Terminal Illness Rider. Also known as an accelerated death benefit, this rider allows you to use your coverage amount to pay for end-of-life care, debt, or that bucket-list trip. Whatever you need to help make your last days more comfortable.
Critical Illness Rider. This rider allows you to use your death benefit to pay for medical care for a specific illness that isn’t terminal but can shorten your life expectancy, such as a stroke or heart disease. Some carriers call this rider a Long Term Care (LTC) Rider.
Return of Premium Rider. This rider returns the money you paid in premiums once you’ve outlived your policy term. So if you paid $800 a year for 20 years beginning in 2020, you get back $16,000 when the term ends in 2040.
Disability Waiver of Premium. This allows you to stop making premium payments and still keep the policy should you suffer an illness or injury that prevents you from working.
How Term Life Insurance Riders Work
The main thing to know about term life riders is that whatever funds you use from your death benefit will be deducted from the payout going to your loved ones after you pass away.
Also, some carriers require that you have the policy for a specific amount of time before you are allowed to withdraw funds from your death benefit.
Your illness must meet the criteria set by both your insurance carrier and the state you live in. To collect funds on a Chronic Illness rider, you must prove that you are unable to perform two of the six Activities for Daily Living (ADL) such as eating, moving, bathing, dressing, and toileting or continence, and other eligibility requirements.
Life expectancy timelines for terminal illness benefits differ among carriers, too. Most stipulate a life expectancy of two years to collect the benefit. It’s important to know what your carrier’s guidelines are if this is a rider you’re interested in buying.