In this episode of Cover Your Assets, Billy Gwaltney explores the concept of terminal illness riders in life insurance policies, detailing how they allow policyholders to access a portion of their death benefits while still alive. The discussion highlights the benefits of having such a rider, including the potential tax implications and the conditions under which these benefits can be accessed.

Takeaways:

  • A terminal illness rider allows access to death benefits early.
  • You can accelerate up to 90% of the death benefit.
  • There is usually a cap of 1.5 million on accelerated benefits.
  • The benefits may be taxable depending on the situation.
  • Having a terminal illness rider is often a no-brainer.
  • You can tap into the death benefit while alive.
  • The rider is included at no extra charge.
  • Terminal illness is defined as having a life expectancy of 12 months or less.
  • You don’t have to use the rider, but it’s worth considering.
  • This rider can provide financial support during critical times.


Transcript:

00:00:01:18 – 00:00:19:20

Welcome to the Cover Your Assets podcast, a show for the physician who understands the importance of protecting everything you’ve worked so hard to achieve. If you’re ready to find the peace of mind that only financial security can bring. Let’s get started. Here’s your host, Billy Gwaltney.

00:00:19:22 – 00:00:45:01

Welcome to this episode of the Cover Your Assets podcast. I’m your host, Billy Gwaltney. And as always, it’s good to be with you today. Today, we’re going to talk about two riders that come with, term life policies. The terminal illness rider and the conversion extension rider. And answer the question of are these important? The bottom line answer is yes, they’re important.

00:00:45:02 – 00:01:09:01

I work with thousands of physicians, helping them secure their private specialty disability coverage. And I end up helping most of our clients with life insurance just because the medical screening and the process and the underwriting and all that is so similar. And for our clients that that get term life policies, these two riders are, typically included in their policies.

00:01:09:03 – 00:01:30:08

And I want to read what they mean and then just offer a brief, synopsis of that or summary of that, as to why it’s important, for, term life policy to have a terminal illness rider, it means that you can accelerate a portion of your death benefit up to 90% of the death benefit. There’s usually a cap.

00:01:30:08 – 00:01:57:19

It’s like 1.5 million, whichever is less than 90% or the 1.5 million, for a terminal illness prior to death. Terminal illness assumes your life expectancy is 12 months or less. The accelerated benefits may be taxable. Depends on the situation. And there’s no additional charge to the term life policy for this rider unless it’s utilized. So it just is on the policy at no extra charge.

00:01:57:20 – 00:02:18:07

It’s kind of a no brainer to have this added so that you could tap into the death benefit while you’re still alive for a terminal illness without having to wait until the death benefit is paid. Could come in handy. You don’t have to use it, but it’s it’s at least worth including, the second riders called the conversion extension rider.

00:02:18:09 – 00:02:56:23

And this allows the insurer to extend the conversion period of their term policy to the end of the policy of the level term period or until the policy anniversary nearest their 70th birthday, whichever comes first. So if you have a ten, 20 or 30 year level term policy, what’s important, a valuable asset to include in your term life policy is the ability, the freedom to switch or convert to a permanent life insurance policy, like a whole life policy or universal life policy, or indexed policy.

00:02:57:01 – 00:03:18:06

Without having to redo any of the medical screening. Okay. So at any point during that term period, you can convert or switch to one of these permanent life policies without having to redo the medical screen. Now someone may you may buy your term policy and have no inclination or interest in doing that. But plans change, and people’s health changes.

00:03:18:08 – 00:03:45:14

And if you get toward the latter half of the term period and you your health has changed and now you’re uninsurable, which we’ve had happen. All of a sudden, having the ability to keep life insurance longer can become important. And if you don’t have a conversion feature on your term policy, which most of them chop shop kind of bottom feeder, the cheapest of the online quote engines typically do not have that.

00:03:45:16 – 00:04:06:18

If you have a quality term life policy, that might be, my clients don’t pay, a lot more, if any more than they do. For the compared to the least expensive options, especially in the top tier carriers. Ameritas is very competitive in that way from a cost standpoint, which is who we do most of our term policies with.

00:04:06:20 – 00:04:26:06

But having the ability to switch to a permanent life policy can be important. This rider does have a fee attached to it. It’s usually, 5 to $10 a month, depending on, depending on the cost of the policy and the, the amount of the death benefit. But it is a vital feature to have. It’s not required to have it.

00:04:26:06 – 00:04:48:02

You can remove it if you want to. It’s not advisable to remove it. It’s just not worth that. Money’s just going to sit in your checking account anyway. Typically. And I’m not saying you want to be nickel and dime to death. That’s not the point. This is a valuable feature to have. It’s an asset. Having the ability or the freedom to switch or pivot.

00:04:48:04 – 00:05:11:03

If your life, if your plans change or your life has an unexpected event. And you want to keep coverage longer, and you otherwise will not be able to keep it beyond the ten years or the 20 years or the 30 years, unless you have this conversion feature. It’s a it’s a valuable asset to keep, in your pocket for future use if you want it.

00:05:11:06 – 00:05:37:09

Okay. So, just food for thought. Your decision. Of course. A word to the wise, to not be penny wise and dollar not so wise. Let me know what you think. Would be happy to discuss your situation. Feel free to text me at (704) 270-2376. Again. (704) 270-2376. Thank you as always for your time.

00:05:37:11 – 00:06:01:03

to the Cover Your Assets podcast and on Conduit Media Production. New episodes drop every two weeks. If you’ve enjoyed the conversation, subscribe, rate and review this podcast. For more tips and advice. Visit the website and YouTube channel. Check the show notes for links. Join us next time for another episode dedicated to helping physicians like you get your disability insurance right and protect your way of life.