Insurance for the living.

DESPERATE TIMES CALL FOR DESperate measures. For the terminally ill, those times are often spent wondering how to pay medical bills and the mortgage, or keep the lights on and the heat up. For many people in mortal crisis, the only way they can get any financial relief is by tapping the sanctity of their homeownership or life insurance policy.

"At this point, the terminally ill person can't work and has realized that savings, disability and Medicaid just aren't enough to cover the growing stack of unpaid bills," says Dave Olson, managing director at Ironwood Capital Partners, an investment banking firm in Hartford, Conn.

With hardly anywhere else to turn, growing numbers of terminally ill people are being driven to try three specific and sometimes costly techniques to get fast cash. Taking an accelerated benefit from a life insurance policy is one way. Applying for a reverse mortgage on a home is another. Finally, a dying person who is particularly desperate has yet another option: to sell his or her life insurance policy to a third party. In such cases, the policy is sold at a steep discount from its face value. People familiar with these transactions caution, however, that in some cases unscrupulous investors seek to take advantage of desperately ill individuals.

ACCELERATED BENEFITS

The accelerated benefit strategy is one of the easiest ways to get cash quick, says Larkin Teasley, president and CEO of Golden State Mutual Life Insurance in Los Angeles. Like many insurance firms, Golden State (No. 3 on BE's top 15 black-owned insurance companies list) offers a Living Benefit Rider, also known as an Accelerated Benefit Rider.

"The Living Benefit Rider was created to provide funds to help cover the cash crunch that happens when there is a serious illness," says Teasley. The accelerated benefit is a payment from the insurance company--not a loan. To qualify, a policyholder must have a physician certify that he or she has six months or less to live. This rider must also be in effect for at least 30 days prior to making a claim.

After qualifying a policyholder for an accelerated payment, Golden State pays the insured 50% of the policy's face value or $50,000, whichever amount is less. If the insurance value is $50,000 and a $25,000 benefit is paid, then the new insurance amount becomes $25,000. The annual premium, cash value and policy loan will be similarly reduced by 50%.

Teasley cautions that the accelerated payment currently qualifies as income by the Internal Revenue Service and is therefore taxable. "But, the advantage is that the policyholder now has money to meet current needs," Teasley points out, "and named heirs or beneficiaries are still eligible to receive a tax-exempt payment after the insured's death."

At the same time, lobbyists for the terminally ill are petitioning the IRS to make income derived from accelerated benefits, reverse mortgages and sales of insurance policies tax-exempt. At press time, the issue had not been resolved.

You can call the National Insurance Consumers Helpline (800-942-4242) to get a comprehensive list of insurers who offer accelerated benefits.