Mortgage protection with living benefits

What living benefits are

A living benefit is an accelerated death benefit: you receive part of your life insurance while you are still alive. Most are triggered by terminal, chronic or critical illness. Whatever you take out is subtracted from what your family receives later.

For a homeowner, this can mean paying the mortgage during treatment or covering in-home care. Transamerica's Trendsetter LB flyer describes using accelerated amounts to replace lost income or pay for care, with the rest kept as a death benefit.

Terminal, chronic and critical illness riders

Terminal illness riders pay when a doctor certifies a short life expectancy. Mutual of Omaha's Term Life Express uses 12 months or less. Transamerica includes a terminal illness accelerated benefit automatically on Trendsetter Super.

Chronic illness riders pay when you need long-term help. Mutual of Omaha requires a doctor to certify you cannot do two of six daily living activities for 90 days in a row. Severe cognitive impairment that requires supervision also qualifies.

Critical illness riders pay after a listed diagnosis. Mutual of Omaha's list includes ALS, kidney failure, life-threatening cancer, major organ failure, heart attack, stroke, dementia, major burns, AIDS and aortic aneurysm surgery. Definitions vary by state.

How much you can take out, and the catches

Limits and payout formulas differ by carrier. Mutual of Omaha caps each accelerated benefit request on Term Life Express at 80% of the face amount at issue. Transamerica says amounts depend partly on the severity of your condition and your remaining life expectancy.

Accelerated benefits may not get the same tax treatment as a death benefit. Mutual of Omaha and Transamerica both tell policyholders to talk with a tax advisor before claiming. Read the rider terms to see what happens to the remaining coverage after a claim.

Disability income and waiver of premium

Disability riders protect the mortgage when you are alive but cannot work. They usually cost extra and have an elimination period before benefits start.

Mutual of Omaha's Disability Income Rider pays monthly for 18 or 30 months, chosen at issue, after a 90-day elimination period. Its Disability Waiver of Premium Rider waives premiums through the level period if you become disabled. The disability must start before age 60 or the end of the level period, whichever is first.

Mutual of Omaha also offers a one-time unemployment waiver for six months, once the policy has been in force for 24 months. American Amicable and Americo list similar disability and unemployment waiver riders on their mortgage-oriented term products.

Living benefits and disability coverage solve different problems. An accelerated benefit pays once for a serious diagnosis. Disability insurance replaces part of your income month by month while you cannot work.

If your employer provides disability coverage, a disability income rider may duplicate it. If you are self-employed, a rider like Mutual of Omaha's, which pays for 18 or 30 months, can fill a gap. Check how each one defines disability.

How four carriers handle living benefits

Mutual of Omaha lists chronic, terminal and critical illness accelerated benefit riders on Term Life Express. Disability income, disability waiver, accidental death and children's riders are optional at extra cost. See our Mutual of Omaha review.

Transamerica includes a terminal illness benefit on Trendsetter Super, and its Trendsetter LB version adds chronic and critical illness benefits. More on our Transamerica page.

American Amicable lists chronic, critical and terminal illness riders on Home Protector, along with disability income and two waiver of premium riders. Americo says its Term 125 and Term 100 include critical, chronic and terminal illness riders at no additional cost. See American Amicable and Americo.

Choosing a policy with living benefits

Living benefits are most useful if you have little savings or disability coverage through work. If you already have long-term disability insurance, you may not need a disability income rider too. Ask which riders are included free and which add premium.

Rider availability varies by state, age and health class. Compare at least two carriers, and read our MPI vs term life guide if you are still deciding on the policy type.

An example of how a claim works

Say you own a $300,000 Term Life Express policy and are diagnosed with a covered critical illness. Under Mutual of Omaha's rules, each request cannot exceed 80% of the face amount at issue.

The insurer then calculates what it pays. Transamerica explains that amounts depend partly on how severe the condition is and your remaining life expectancy. The payout can be less than the amount of death benefit you give up.

Whatever death benefit remains still goes to your beneficiary. Ask the carrier for an example calculation before you rely on a living benefit to cover the mortgage.