life and Health Insurance - FIN-3660
Life and Health Insurance FIN 3660
Chapter 7
Supplemental Benefits
Objectives
Identify and describe three types of supplemental disability benefits that life insurance policies may provide.
Explain the coverage that an accidental death benefit rider provides and give examples of common exclusions.
Identify three types of accelerated death benefit riders and describe the differences among those riders.
Describe three types of insurance riders that expand a life insurance policy’s coverage to insure more than one individual.
Identify two types of insurability benefit riders and explain how they allow a life insurance policyowner to purchase additional insurance coverage.
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The Basics
Supplemental benefits are benefits that can be added to individual life insurance policies.
An additional premium amount is usually charged for each benefit.
Sometimes supplemental benefits are provided by a policy provision, but usually they are provided by adding riders to a life insurance policy.
This helps when customizing a policy, because a new contract is not needed to add coverage.
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Supplemental Disability Benefits
Disability benefits can be added to a life insurance policy.
One of the most common supplemental benefits is the waiver of premium for disability (WP) benefit.
Under this, the insurance waives its right to collect premiums that become due while the insured is totally disabled. The insurer pays the premiums, so a policy that builds a cash value will continue to increase.
In participating policy the insurance company continues to pay policy dividends as if the policyowner were paying premiums.
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WP Benefits
The policyowner must notify the insurance company in writing of a claim and provide proof that the insured is totally disabled as defined by the WP benefit.
Total disability is the insured’s inability to perform the essential duties of their own occupation or any other occupation for which they are reasonably suited by education, training, or experience.
The insured must be totally disabled for three to six months before the insurer will waive premium payments.
Disabilities resulting from self-inflicted injuries and injuries suffered while committing a crime are typically excluded.
In cases with variable premiums (universal and variable life insurance policies), charges that are waived vary depending on the terms of the WP benefit rider.
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Waiver of Premium for Payor Benefit
Waiver of premium for payor benefit provides that the insurance company will waive its right to collect a policy’s renewal premiums if the policyowner dies or becomes totally disabled.
Usually this is included as a rider to a juvenile insurance policy, one that is issued on the life of a child but owned and paid for by an adult.
Premium payments are only waived until the insured reaches a certain age.
A policyowner is totally disabled during the first two years of disability if they are unable to perform the essential duties of their own occupation. After that, they are considered totally disabled if they cannot perform the essential duties of any occupation for which they are reasonably suited by education, training, or experience.
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Disability Income Benefit
The disability income benefit provides a monthly income benefit to the policyowner-insured if they become totally disabled while the policy is in force.
Definition for total disability is the same as WP, as is the wait period.
Usually the income is a certain percentage of the policy’s face amount.
Generally this goes hand in hand with WP.
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Accidental Benefits
Accidental death benefit a supplemental life insurance policy benefit that provides a death benefit in addition to the policy’s basic death benefit if the insured dies as a result of an accident.
Double indemnity benefit when the amount of accidental death benefit is equal to the face amount of the life insurance policy.
Determining the precise cause of an insured’s death can sometimes be quite difficult.
Some exclusions: suicide, war related accidents, aviation-related accidents if the insured was not a passenger, and accidents resulting from the insured committing a crime.
Accidental death and dismemberment (AD&D) provides accidental death benefits and provides a dismemberment benefit payable if an accident causes the insured to lose any two limbs or sight in both eyes.
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Accelerated Death Benefits
Also known as a living benefit, this provides that a policyowner may elect to receive all or part of the policy’s death benefit before the insured’s death under certain conditions.
Usually only offered on policies with larger face amounts.
Three commonly offered types of accelerated death benefits: terminal illness benefit, dread disease benefit, and long-term care benefit.
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Accelerated Death Benefits
Terminal illness (TI) benefit a benefit under which the insurer pays a portion of the policy’s death benefit to a policyowner-insured who suffers from a terminal illness and has a physician-certified life expectancy of less than a stated time, generally 12 or 24 months.
Typically paid for by an administrative charge that the insurer assesses when a policyowner-insured elects to exercise the TI benefit.
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Accelerated Death Benefits
Dread disease (DD) benefit an accelerated death benefit under which the insurer agrees to pay a portion of the policy’s face amount to the policyowner if the insured suffers from one of a number of specified diseases.
Diseases included: life-threatening cancer, coronary artery bypass surgery, heart attack, stroke, end-stage kidney failure, AIDS
Some DD benefits include organ transplants and Alzheimer’s disease.
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Accelerated Death Benefits
Long-term care (LTC) insurance benefit ab accelerated death benefit under which the insurer agrees to pay a monthly benefit to a policyowner if the insured requires constant care for a medical condition.
The care given and the medical condition required to qualify are specified in the LTC policy rider or provision.
Premiums generally are waived on both the long-term care benefit and the basic life insurance policy.
The amount paid is generally a percentage of the policy’s face amount.
Typically there is a 90 day waiting period before benefits are payable.
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Benefits for Additional Insureds
Spouse insurance rider a supplemental life insurance policy benefit that provides term life insurance coverage on the insured’s spouse. Typically sold on the basis of coverage units. Most insurance companies do not offer more than 5 or 10 coverage units.
Children’s insurance rider a supplemental life insurance policy benefit that provides term life insurance coverage on the insured’s children. Some insurers combine spouse and children’s insurance coverage into one rider, a spouse and children’s insurance rider.
Second insured rider a supplemental life insurance policy benefit that provides term insurance coverage on the life of a person other than the policy’s insured. Can be spouse, another relative, or an unrelated person. Typically the coverage is greater than the spouse’s insurance rider.
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Insurability Benefits
Guaranteed insurability (GI) benefit a supplemental life insurance policy benefit that gives the policyowner the right to purchase additional insurance of the same type as the basic life insurance policy. The premium for the additional coverage is based on the insured’s attained age when the additional insurance is purchased. If the policyowner does not exercise the option to buy extra coverage on the specified dates, that option is lost forever, though the policyowner is permitted to exercise the next option when it comes due.
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Insurability Benefits
Paid-up additions option benefit a supplemental life insurance policy benefit that allows the owner of a whole life insurance policy to purchase single-premium paid-up additions to the policy on stated dates in the future without providing evidence of the insured’s insurability.
Premiums for the paid-up additions are based on the insured’s attained age at the time the paid-up additions are purchased.
Most riders state that if the policyowner does not exercise the purchase option for a stated number of years, then the rider will terminate. At that time, the paid-up additions already purchased remain in force, but the policyowner can no longer exercise the option to purchase new paid-up additions.
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