If you are terminally ill, your life
insurance policy is a valuable resource. Not only can you
use life insurance to provide adequate income to your
survivors for their short- and long-term needs, but you also
may be able to receive a portion of the death proceeds from
your life insurance before you die in order to pay necessary
expenses or to fulfill a dream.
Can you purchase additional life
insurance?
Unfortunately if you are terminally ill, you pose a
high-level risk to an
insurance company, and you will probably be unable to buy
additional life insurance coverage. However, under a
guaranteed insurability rider (an additional purchase option),
you may be able to buy additional life insurance without
providing proof of medical insurability.
If you are taking out a loan to buy a
big-ticket item, and you are still employed, you may also be
able to purchase credit life insurance that will pay off the
balance of your loan should you die.
Life insurance can be used to help
ensure estate liquidity
Buying as much life insurance as you can will help ensure
that your estate has adequate cash available to pay for
taxes and expenses that arise after death, including the
cost of a funeral, executor's fees, attorney's fees, debts,
and the daily living expenses of your survivors.
You may be able to take out a loan
against the cash surrender value
If your life insurance policy has accumulated a cash value,
you may be able to obtain a loan from the insurance company
using your policy as collateral. The main disadvantage of
taking a loan against your policy when you are terminally
ill is that since it's unlikely you'll be able to repay it
in full before your death, the loan balance will be
subtracted from the proceeds that are payable to your
beneficiaries.
You may be able to apply for benefits
from an accelerated death benefit rider
You may own a life insurance policy that includes an
accelerated death benefit (ADB) rider. If so, you may be
eligible to receive part of the face amount of the policy in
advance of your death, either in one lump sum, or in
installments. Usually, you can use the proceeds however you
wish, and if your life expectancy is 24 months or less, the
proceeds will be nontaxable to you. You may also be able to
elect to take less money than the full amount available to
you so that some benefit will be payable to your survivors.
You may be able to apply for benefits
from a critical illness life insurance policy
Critical illness life insurance (CILI) is a form of critical
illness insurance. It usually consists of a rider attached
to a life insurance policy that pays benefits to you when
you are chronically or terminally ill. If you own critical
illness life insurance, benefits will be paid to you while
you are still living, and you can use the money you receive
to pay your daily living expenses, increased medical costs,
or in any other way you choose. However, the amount you
receive (in the case of terminal illness, often 100 percent
of the policy's face value) will reduce or eliminate
benefits payable to your survivors. Because critical illness
life insurance is often composed of a rider (sometimes an
accelerated death benefit rider) attached to a life
insurance policy, the income tax consequences should be the
same. Proceeds payable to you will be nontaxable if your
life expectancy is 24 months or less.
You may want to sell your policy to a
viatical settlement company or provider
A viatical settlement is the sale of a life insurance policy
to a third party, usually a viatical settlement funding
company owned by a group of investors. When you sell your
policy, you will generally receive between 40 and 85 percent
of the face value of the policy, and you can use the cash
payment any way you wish. Many individuals use the proceeds
to pay medical costs or living expenses, while others use
the proceeds to fulfill a final dream, or to experience the
joy of giving money away to others. However, there are
drawbacks. Your survivors will no longer be the
beneficiaries of your life insurance policy, and they will
receive no money from the policy when you die. In addition,
although money you receive from a viatical settlement is
income tax-free if your life expectancy is 24 months or
less, proceeds will be included in your gross estate under
the three-year rule, and money you give away may be subject
to gift tax.
Change your dividend option
If your insurance policy pays you annual dividends, you
may be able to purchase more life insurance. Check the
dividend option currently in effect. If the dividends are
left to accumulate, or used to reduce premiums, most
policies will allow you to switch to a paid up additions
option. This allows you to use the dividends to buy fully
paid up additional life insurance on yourself with no proof
of medical insurability.
Check your company's group life
insurance program
If you are still employed, you may
be able to purchase additional life insurance through your
company's program with no evidence of medical insurability.
This may be available at any time or only during an open
enrollment window usually provided annually.
Learn More...
Life
Insurance Overview | Understanding
The Basics | Term
& Cash Value
Coverage Amounts
| Reading Policies | Planning
Concerns | Life
Calculator | Life Glossary
Please Note: The
information contained in this Web site is provided solely as a source of
general information and resource. It is a not a statement of
contract and coverage may not apply in all areas or circumstances. For a complete
description of coverages, always read the insurance policy, including
all endorsements.
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