Many Americans are unwilling to pay for skyrocketing medical costs. According to recent data from the Kaiser Family Foundation:
- Four out of ten adults in the US say they have difficulty paying for health care.
- About a third worry about paying their monthly health insurance premiums, and 44 percent worry they won’t be able to afford the deductible before health insurance takes effect.
- Forty-one percent report debt due to medical or dental bills, including amounts owed by credit cards, collection agencies, family, friends, banks, and other lenders.
Although the Inflation Reduction Act promises to reduce some health care costs, like prescription drugs and insurance premiums, consumers may still face out-of-sight costs. What can you do to help ease the pain of paying for an unexpected, long-term illness without affecting your finances?
In addition to your health insurance, life insurance can be used for medical needs while you are alive. Offering “living benefits,” some policies may give you access to funds that you can use to cover hospital bills, nursing homes, or other major healthcare expenses.
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How life insurance can help cover medical expenses
Here are some ways life insurance can help cover expensive medical bills if you have a chronic condition:
Waive your policy
With permanent life insurance, you can withdraw money from the policy at any time and use the money to pay medical bills. However, there are downsides to taking this approach, including:
- you lose your insurance.
- You may have to pay income tax on any amount you receive that is greater than what you paid for the policy
Make a withdrawal
The premiums you paid on your policy can be withdrawn (tax-free) and used to pay your medical bills. However, any withdrawals you make will reduce the policy’s value and the death benefit and may have adverse income tax consequences.
Borrow from cash value.
If you have permanent life insurance and have accumulated cash on the policy, you may be able to use those funds to pay medical bills. Like all loans, you must repay the insurance company with interest. Otherwise, your policy may lapse, or your beneficiaries may receive a lower death benefit than you originally intended. However, unlike borrowing money from a bank or other lender, this loan is not subject to a credit check and may offer a better interest rate.
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Consider the interests of different riders
Prepaid death insurance terms
Usually included in life insurance policies at no additional cost, the express death benefit separate provision allows you to access your death benefit if you are diagnosed with an illness. Many. Policies and coverage vary, but generally, this particular provision allows you to take all or part of your death benefit to pay for critically important medical services or other essentials without having to cash out other savings your spouse or family may need.
The money you take from your policy for treating a terminal illness is tax-free and, in most cases, doesn’t require you to keep receipts for how you spent the money.
Passengers with severe or chronic illness
Similar to the expedited death benefit option, some life insurance policies may allow you to access the funds if you are diagnosed with a critical or chronic illness. Rules and definitions can vary, so it’s best to check with your insurance advisor to determine the specifics of your policy.
Insurance fee waiver
This option lets you stop paying your life insurance premiums and any additional provisions if you become completely and permanently disabled. Of course, you’ll want to read the fine print carefully to see what qualifies, but usually, this will prevent the policy from lapsing. . . and you can transfer the money you save from paying that premium to help pay your medical bills.
Long-term care insurance terms
Like other add-ons, this separate provision allows you to unlock some or all of the death benefits provided by your policy if you need to pay for long-term medical care. While it can be much less expensive than paying for long-term care insurance, accessing the death benefit will reduce the amount your beneficiaries ultimately receive.
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Other things you should know about using life insurance to pay medical bills
