editing disabled

Accelerated Benefits is the innovative, new life insurance policy rider. New insurance encompasses the advancement and alteration in the insurance industry. Economic factors, consumer needs and government regulation have influenced the necessary evolution of the industry. Accelerated Benefits has developed as a result of these factors. Life insurance is vital to family and family businesses because it is designed to cover the expenses and the loss of income associated with the death of an insured. Policy riders have become an important part of the insurance industry because they allow customers to tailor policies to fit their individual needs.
Life insurance policies traditionally designed for the possibility of dying too soon are evolving to emphasize not only protecting against premature death, but also the economic devastation of living too long. The fact is that Social Security alone does not provide enough coverage for retirement. Planning for retirement and medical needs associated with living longer needs to be addressed by everyone. Planning enables one to mitigate risk. Risk can be dealt with in one of four ways: retention, avoidance, reduction and transformation. Insurance is an example of risk transformation. It enables assurance that financial obligations pertaining to family and/or business matters will be met.
Accelerated benefits (also known as Living Benefits) are benefits that are attached to a Life Insurance policy as either part of the policy, an endorsement or a rider. They enable a portion of a policy’s death benefit to be used to offset the possibly catastrophic expenses associated with chronic illness, critical illness, terminal illness or loss of income due to disability when eligibility requirements are met. These benefits can be used toward a business if one of these events were to occur to a key person or shareholder.
Death benefits are the amount paid to an insured or rather their estate in the event of their death. Currently these benefits are received income tax free as stipulated in the Health Insurance Portability and Accountability Act of 1996. With a traditional life insurance policy the amount is called the face value. However under a new insurance policy with accelerated benefits the death benefits equal the face value minus any accelerated benefits paid out. The death benefits can be utilized for purposes of business succession, assist in the financial obligations entailed in Buy-Sell Agreements and prevent undesired events such as liquidation of family business.
Some may assume Accelerated Benefits lead to expensive premium payments. However this is not necessarily true. Riders generally can be added for a nominal increase in premium and their benefits can be vast. The benefits can be used however the insured sees fit. Some ways in which benefits ideally could be used include childcare, assisted living expenses, replacement key employee paychecks, necessary bills such as heat and electricity or a trip of a life time which may never otherwise be taken. The benefit is that one is able to live out their life or recover with as much dignity as possible.
An example:
Kevin McCallister; a second generation owner of McCallister & Son Llc, husband and father of two; purchases a one million dollar life insurance policy with an accelerated benefits rider. 10 years later Kevin is diagnosed with prostate cancer. Unable to perform his duties in the business and at home he is in need of money to pay for the extra expenses, maintain a quality of life and avoid debt. Without assistance the overall well being of his business and family may suffer. Cancer qualifies as a critical illness therefore Kevin is able to receive accelerated benefits upon his diagnosis and contacts his insurance agent. They decide $250,000 will be an ample amount to ease Kevin and his families’ financial concerns. Upon issuance of the check the policy’s death benefit is decreased to $750,000. The money received is income tax free; and it can be used to hire someone to perform his duties in the business, hire handymen for the home, pay for extra childcare expenses or even take his family on their dream vacation to Disney World.


Article contributors

This article is a stub. You can help Family Business Wiki by expanding it.

Catgories: Death and disability