Living Benefits of Indexed Universal Life Insurance

June 10, 2022

One of the primary benefits of an Indexed Universal Life insurance policy (IUL) is that in addition to paying a death benefit to your heirs in the event you should die, it also will provide you with living benefits in the event you should get a critical, chronic or terminal illness.

While the specifics will vary according to the policy, here is how the terms are defined by a carrier that I recommend:

Critical illness
This benefit allows the acceleration of up to 100% of the policy’s death
benefit, not to exceed $1,000,000 if the insured suffers from a covered
critical illness.
It covers a heart attack, stroke, major organ transplant,
paralysis, diagnosis of ALS (Amyotrophic Lateral Sclerosis), arterial
aneurysms, central nervous system tumors, significant burns, an
end-stage renal failure diagnosis and invasive cancer.

Terminal illness
If a physician diagnoses the insured with a terminal illness that results in a
life expectancy of less than 24 months, this rider allows the acceleration
of up to 100% of the policy’s death benefit, not to exceed $1,000,000.

Chronic illness
May accelerate up to 25% of the policy’s death benefit if the primary
insured is certified by a licensed health care practitioner in the previous
12 months as having a qualifying chronic illness. A qualifying chronic
illness is defined as being unable to perform two out of the six activities
of daily living (ADLs) or requiring supervision because of severe cognitive
impairment. This rider does not terminate after the initial acceleration.
Subsequent annual accelerations are available, upon continued
qualification, until your client accelerates either 100% of the death benefit
or the lifetime maximum of $1,000,000.
The accelerated amount is paid prior to death, so the amount paid will
be less than the amount accelerated. The policy death benefit will be
reduced by the amount accelerated.

I recently had a prospective client ask me if the living benefits covered Alzheimer’s disease or dementia. Yes, the policy would cover this under the Chronic illness coverage once you would be unable to perform two of the six activities of daily living (ADL).

And what exactly are the ADLs being referred to? Here they are:

Basic ADLs, sometimes referred to as BADLs, are self-care activities routinely performed which include, but are not limited to:

  • Functional mobility, which includes the ability to walk and transfer in and out of a chair or bed. Essentially, it’s the ability to move from one place to another as a person goes through their daily routines.
  • Personal hygiene, oral care and grooming, including skin and hair care
  • Showering and/or bathing
  • Toileting, which includes getting on/off toilet and cleaning oneself
  • Dressing, which includes selecting appropriate attire and putting it on
  • Self-feeding

Source: Activities of Daily Living (ADLs) – SeniorLiving.org

The living benefits offered by modern IULs are significant and can make buying an IUL an even better decision.