Severe Disability Premium

Two main methods of ensuring disability income in life insurance policies are: waiver of premium and combination policies.

1. Waiver of premium

Many life insurance policies offer a "waiver of premium" provision if the policy owner becomes disabled during the term of the policy. A separate premium to pay for this additional coverage or rider. For fiscal reasons, the adjusted cost basis of the policy does not include the additional premium payable for this service. Payment of such benefit does not constitute a disposition for tax purposes, because it pays an amount equal to the premium to continue existing policy.

2. Combination of policies

A policy that is considered exempt allows the cash values in the plan accumulate on a tax-deferred basis. Recently, some insurers have designed policies that allow the addition of disability benefits in an exempt life insurance policy.

These policies provide both (i) the life insurance coverage and (ii) disability insurance benefits. For example, one type of policy allows the redemption value of the insurance contract to fund all or part of the disability premium. The cash value can also be used to fund disability benefits. Therefore, the waiting period for disability benefits may be extended, which reduces the cost of disability benefits.

There are several advantages and disadvantages of these combination products:

Benefits of combination policies

a) The packaging of insurance benefits in one product can simplify the process for the potential buyer.

b) The completion of the application and underwriting requirements for combined policies may be faster than duplicate questions and medical tests can be avoided.

c) The policyholder may benefit from reduced fees under a policy policy.The combined premiums for disability insurance benefits are normally after-tax charge.

However, the surrender value of life insurance that are increasingly on a tax-deferred basis can be used to finance costs under a combined program. The policyholder therefore, the benefits due to their ability to use investment earnings tax-deferred under the exempt life insurance policy to cover part or all of the disability premiums.

d) The combination of disability insurance and life insurance creates flexibility for the payment of premiums. In general "disability products that" require the payment of a premium annual level.

By including disability coverage within an exempt insurance policy, it is possible to build a cash reserve that can be used to fund future morbidity and disability costs.

2. Disadvantage

a) It can be very difficult for a company to provide the best products in the life insurance and disability product lines. A claimant may have to abandon certain product characteristics important when a combination product.

b) a combination product may not be as flexible as separate policies once the policy is in force. A tenant living separate and disability policies may make changes to a policy, such as delivery of the policy, without affecting benefits under the policy of others. This may not be the case with a combination product.

c) As they are relatively new on the market, the tax treatment of these types of plans is still evolving. tax authorities may disagree with the position of the insurer the surrender value of an insurance policy can be paid tax free in the event of disability. In addition, the calculation of the adjusted cost basis of the insurance policy can be affected by the interpretation of the tax rules and the combination of benefits under an insurance policy could affect its status exemption.

I hope this information may Hel.