Ask most people what life insurance does, and they will give you some version of the same answer:
“It pays my family if I die.”
That answer is not wrong. It is incomplete.
Life insurance protects the people who depend on you by helping replace your income, pay the mortgage, and preserve some financial stability after you are gone.
But what happens if you survive it instead? Cancer, a heart attack, a stroke, something that keeps you out of work for six months or a year. Your income may stop, but the mortgage, utilities, groceries, and medical bills do not.
Sometimes, the greatest financial threat is surviving a serious illness without the income needed to keep your life and family afloat.
Life insurance is not just “death insurance”
Most life insurance policies today include or offer living benefits, also known as accelerated death benefits. Every policy I currently work with includes them.
After receiving a qualifying chronic, critical, or terminal illness diagnosis, the policyholder may be able to access a substantial portion of the death benefit while still alive. With the policies I work with, the amount available is usually between 80 and 90 percent of the policy’s death benefit, depending on the policy and qualifying diagnosis.
That money is not restricted to medical bills. Once the policyholder qualifies, it can be used however they choose. It could replace lost income, pay the mortgage and other household expenses, cover treatment or caregiving costs, or simply help keep the family financially stable.
A critical illness benefit may be triggered by a qualifying condition such as a heart attack, stroke, or certain cancers. Chronic illness benefits are often based on someone being unable to perform at least two of the six activities of daily living: bathing, dressing, eating, toileting, continence, and transferring. Severe cognitive impairment may also qualify. Terminal illness benefits apply when someone has been diagnosed with a limited life expectancy.
The exact definitions and qualifications vary by policy, but the larger point is simple: life insurance may be able to help while the insured person is still alive.
The need for care is far more common than most people realize
According to the federal Administration for Community Living, someone turning 65 today has almost a 70 percent chance of needing some form of long-term-care services or support during the remainder of their life.
That does not necessarily mean living in a nursing home. Long-term care can include assistance received at home, in the community, in assisted living, or in a nursing facility.
Many people assume Medicare will pay for that care. Medicare may cover short-term skilled nursing care under specific circumstances, but it generally does not cover ongoing custodial care, including extended help with bathing, dressing, eating, or using the bathroom.
Living benefits are not identical to standalone long-term-care coverage. However, chronic illness benefits can provide access to money when someone qualifies and needs care while still facing all the ordinary expenses of being alive.
This is why it is so important for people to understand what their life insurance actually includes. They may already be paying for valuable protection without knowing that it exists or how to use it.
Employer coverage may not be enough
Many people believe they are fully protected because they have life insurance through work. Employer coverage can be valuable, but it is often limited to one or two times the employee’s annual salary and connected to the job.
For a family that depends on that income, the benefit may not come close to replacing years of earnings, paying off a mortgage, or supporting children through adulthood. Leaving the company, retiring, or changing employers may also affect the coverage.
The important question is not simply, “Do I have life insurance?” It is, “How much do I have, what benefits are included, and would it actually protect my family if something happened?”
September is Life Insurance Awareness Month. It is an opportunity to review the coverage you already have and understand what it can do before you need it.
Life insurance cannot prevent a death, diagnosis, or disability. It can help prevent one devastating event from becoming a second financial crisis for the people you love.
Have you had this conversation in your own family?
Benefits, definitions, limitations, and eligibility requirements vary by insurer, policy, and state. Accelerating a death benefit generally reduces the amount remaining for beneficiaries and may have tax or other financial consequences.
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