Life Insurance with Living Benefits

Eric Van Haaften Feb 20, 2026 Types of Life Insurance Policies

When many people think of life insurance, they don’t realize it can offer far more than just a death benefit.

Today’s policies can now include powerful living benefits that can provide financial support during serious health challenges or unexpected emergencies.

Our comprehensive guide explains how these benefits work while you’re still alive and why they’re becoming one of the most valuable additions to many life insurance plans.

Life Insurance Living Benefits Explained

Our agents like to remind our clients that life insurance isn’t just about what it leaves behind—it’s also about how it can support you while you’re still here.

That’s because modern life insurance policies have evolved to include living benefits that allow you to access a portion of your death benefit if you face a terminal, critical, or chronic illness, or if you need long‑term care.

Term life insurance may offer these benefits through riders, while permanent policies go further by providing both riders and cash value you can use during your lifetime.

These features help reduce financial strain during major health events, giving you the flexibility to focus on your care and the time you spend with the people who matter most.

How Living Benefits Riders Work

Living benefits are added to your policy through riders that allow you to access part of your death benefit if you experience a qualifying health event.

These riders can include terminal illness, chronic illness, critical illness, and long‑term care options.

When triggered, they provide a portion of your benefit—either as a lump sum or a monthly payout—to help you manage medical or care‑related expenses.

Whatever benefits you use while you are living are deducted from the amount your beneficiaries receive later.

Our agents will work with you to help you understand which riders fit your needs and how they can strengthen your overall protection.

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Terminal illness rider

One of the most common living benefits found in both term and permanent life insurance is the accelerated death benefit, also known as the terminal illness rider.

This rider is often included at no additional cost and allows you to access a portion of your death benefit if you’re diagnosed with a terminal illness.

The funds can be used for medical bills, caregiving needs, or any personal expenses you face while still alive.

To qualify, most insurers require a diagnosis confirming a life expectancy of 24 months or less. The amount available varies by policy, typically between 25% and 100% of the total death benefit.

Example: Melody has a $400,000 term life insurance policy with a 75% terminal illness rider. After being diagnosed with a terminal illness and given less than 24 months to live, she can access $300,000 of her benefit while alive. The remaining $100,000 will pass to her beneficiary upon her death.

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Chronic illness rider

Unlike the ADB rider, your medical condition doesn’t need to be terminal for you to use chronic illness benefits.

The chronic illness rider lets you access your death benefit if a chronic illness prevents you from performing at least two of the six Activities of Daily Living.

The Activities of Daily Living are categorized into eating, bathing, dressing, toileting, transferring, and continence.

A chronic illness benefit will be paid if you cannot perform two of the ADL requirements, provided the insurance company has approved your claim.

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Critical illness rider

A critical illness rider helps provide financial protection if you are diagnosed with a qualifying illness.

For an extra fee, it can protect against diseases like cancer, stroke, heart attack, ALS, and kidney failure.

Qualifying policyholders can access a one-time lump-sum payment for up to 100% of the policy’s death benefit.

The utilized critical illness benefits are deducted from the death benefit, and any remaining benefits are disbursed to your beneficiaries upon death.

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Long-term care rider

Long-term care riders, also called hybrid long-term care insurance, are a great alternative to purchasing a standalone long-term care policy.

The LTC rider lets you access a portion of the policy’s death benefit to pay for nursing home or assisted living facility expenses.

The LTC rider lets you access your death benefit for long-term care expenses if you can no longer perform at least two ADLs.

The amount of money you can expect from the death benefit will vary by insurer. The monthly benefit is a percentage of your total death benefit, ranging from 1% to 4%.

Because this rider adds significant value, it does increase premiums and is available only on universal and whole life insurance.

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RETURN OF PREMIUM RIDER

A return of premium (ROP) rider refunds the premiums you’ve paid if you outlive your term policy, turning your coverage into a built‑in savings feature.

When added to certain universal life policies, it functions more like a cash‑out option, requiring you to cancel the policy to receive the refund.

For instance, American National’s cash-out rider allows for a partial or complete return of your premiums after the 15th, 20th, and 25th policy anniversaries.

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disability income rider

A disability income rider provides monthly income if you become sick or injured and can’t work, helping replace lost earnings during your recovery.

Most of the life insurance companies that we represent will pay benefits for up to two years or until you’re able to return to work.

This rider is different from the waiver of premium rider, which only covers your policy payments—not your income—during a long‑term disability.

Who Should Consider Living Benefits

Living benefits aren’t just add‑ons—they’re one of the most practical ways to turn life insurance into a financial resource you can use while you’re still alive.

We highly recommend these unique riders to those who need a standard death benefit and may also require vital financial support during major health events.

No Emergency funds: If you don’t have a large financial cushion, living benefits can help cover medical bills, caregiving costs, or lost income during a major illness.
Single Income Families: A chronic or critical illness can disrupt your ability to work. Living benefits offer a built‑in safety net that helps protect your household’s financial stability.
Adverse Family History: If conditions like cancer, heart disease, or Alzheimer’s run in your family, having access to accelerated benefits can provide peace of mind.
Cover Mortgages: Living benefits can help your family stay current on your mortgage if your health suddenly changes.
Long‑term Care Needs: Since true LTC riders are only available on permanent life insurance, clients concerned about future caregiving costs should strongly consider policies with these benefits.

Are Life Insurance Living Benefits Tax‑Free?

Before accessing your living benefits, it’s1 important to understand how these payouts may affect your overall financial picture, according to Think Advisor.

Receiving living benefits may affect eligibility for programs such as Medicaid or SSI, which have strict income and asset limits. If the payout pushes you over those limits, you could lose access to those benefits.

There are also tax considerations. In most cases, the IRS does not tax living benefits when they’re paid due to a qualifying medical condition with a life expectancy of 24 months or less.

However, tax issues may arise if someone other than the insured—such as a spouse or child—receives the funds.

Because living benefits can influence both taxes and government assistance, it’s always wise to review your options with one of our insurance agents or an accountant before moving forward.

Living Benefits on Term Life Policies

Term life insurance offers affordable, guaranteed premiums for 10 to 40 years, and many policies now include valuable living benefits.

It’s good to know that most term life insurance policies include a terminal illness rider at no extra cost, giving policyholders basic access to their death benefit during a serious diagnosis.

You can also enhance your coverage with additional living benefit riders for chronic illness, critical illness, return of premium, and disability waiver at an extra cost. However, term life insurance usually does not include long-term care riders.

As you can see, these optional riders can turn a simple term policy into a practical source of emergency funds during a major health event.

Forbes Advisor highlights reputable insurers offering robust living benefits riders, including Corbridge, Lincoln Financial, Transamerica, and Mutual of Omaha.

Notably, Transamerica and Corbridge provide accelerated death benefits for policyholders facing chronic illness, critical health conditions, or terminal illness.

Our dedicated agents are available to assist you in comparing the features and pricing of various riders from multiple insurance companies.

You can begin by using our insurance calculator to compare rates online. This way, you can find affordable options that align perfectly with your needs and budget.

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Permanent Coverage with Living Benefits

Permanent life insurance provides lifelong protection and builds cash value you can use while you’re living.

Permanent coverage includes whole life, universal life, and indexed universal life, each offering different advantages depending on your long‑term goals.

While permanent coverage is more expensive and complex than term insurance, it’s also where many insurers reserve their strongest living benefit options.

Most permanent policies include a terminal illness rider at no extra cost, while riders for chronic illness, critical illness, or long‑term care typically can be added for an additional premium.

For instance, Prudential’s well-regarded BenefitAccess rider is only available with its permanent plans. If you confront a chronic or terminal illness diagnosis, Prudential’s living needs benefit provides 100% of your death benefit.

It’s also worth noting that long‑term care riders are offered almost exclusively on permanent coverage because they rely on lifetime guarantees and cash value support—features term insurance simply doesn’t provide.

Living Benefits of Using Cash Value

One of the most valuable living benefits of permanent life insurance is the ability to access your policy’s cash value while you’re still alive.

You can tap into the cash value of your permanent life insurance policy through loans or direct withdrawals.

Securing a policy loan against your policy’s cash value offers lower interest rates and more flexible repayment terms than traditional bank loans.

However, if loans aren’t repaid, they can eventually drain the cash value and cause the policy to lapse.

Alternatively, you might consider cashing out by withdrawing all or part of your funds. These withdrawals are tax-free up to the amount you’ve paid in premiums.

One thing to keep in mind is that any outstanding loan or withdrawal will reduce your eventual death benefit dollar‑for‑dollar.

FAQ: The Living Benefits of Life Insurance

Is life insurance with living benefits worth it? Selecting coverage with living benefits can provide financial security and flexibility in case of serious health issues. Consider various policies and their costs to find the best option for you.

Do you have to pay back the living benefits of life insurance? Living benefits enable you to access funds without needing repayment. These loans and withdrawals are simply advances on your policy’s death benefit.

Can I use living benefits for non‑medical expenses? Once approved, you can use the funds however you choose—medical bills, caregiving, household expenses, or income replacement during a serious health event.

How do you qualify for living benefits? You must provide medical documentation showing a qualifying health condition, typically a chronic, critical, or terminal illness. Most insurers require a doctor’s certification to confirm the severity of your condition.

Can my policy be canceled if I become terminally ill? Your insurer cannot cancel, change, or raise the cost of your policy because you become terminally ill, as long as you continue paying your premiums. Once the policy is in force, your health status cannot be used against you.