Terminal Illness

 

 

 

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.