A nonforfeiture benefit provides some coverage after making the premium payments for a specific period time. This benefit offers protection if you cancel your coverage or stop your premium payments. Generally, nonforfeiture provides limited benefits. It is usually based on the amount of time you’ve had the coverage and the amount of premium payments you’ve paid.
Significance of Nonforfeiture Benefits
Without this type of benefit, you get nothing, even if you have been diligent for ten or twenty years of paying your premium. There are states that require carriers to offer long-term care insurance policies with a written offer of nonforfeiture benefit. In this case, you may be offered benefit options like reduced paid-up policies, shortened benefit period policies and extended term policies. These options have different premium costs.
A paid-up policy usually has the same benefit period but with a lower daily benefit. Shortened Benefit Period Policies, on the other hand, have the same daily benefit but with a shorter benefit period.
Return of Premium Nonforfeiture Benefit
Other insurance companies that specialize in long-term care coverage may offer a “return of premium” nonforfeiture benefit. This is the most expensive among the type of nonforfeiture benefit because it pays back to you all or part of the premiums that you paid in if you decided to cancel your policy after a number of years of diligent payments.
The amount you will receive depends on your age at the time you bought the policy, the type of nonforfeiture benefit, and whether you bought an inflation protection rider. If you are planning to add this benefit, it would be helpful if you will consult a tax advisor.
In some states, a company is required to provide a contingent benefit upon lapse if you will not accept the offer of a nonforfeiture benefit. The contingent nonforfeiture provides that should your carrier increase your premiums to a level that results to a cumulative percentage increase equal to or higher than the state prescribed percentage, you have the right to reduce the present benefits without an underwriting and you can convert your present coverage pursuant to the Contingent Nonforfeiture benefit option which will change the policy’s limit and paid up status.