Life Insurance with Living Benefits

Eric Van Haaften Types of Life Insurance Policies

Living benefits in life insurance are a feature that allows policyholders to access funds during their lifetime.

This concept might seem unusual to some, but it’s highly valued by those who need financial support in times of crisis or upon diagnosis with a serious illness.

Here’s a closer look at the significance of living benefits and how you can take advantage of them if interested.

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What are life insurance living benefits?
How do life insurance living benefit riders work?
Does term life insurance have living benefits?
Are permanent policies useful when you are living?
How do you access your cash values when you’re alive?
FAQ: The Living Benefits of Life Insurance

What Are Life Insurance Living Benefits?

Facing a terminal illness diagnosis can be devastating, but if your life insurance policy includes living benefits, there’s a silver lining.

Living benefits in a life insurance policy enable you to use part of the death benefit while you are alive to cover costs associated with terminal, critical, chronic illness, and long-term care.

While term life insurance policies may include riders for living benefits, permanent policies go further by offering both riders and accessible cash value during your lifetime.

These features help mitigate financial stress from health issues, allowing you to access the care needed while enjoying precious moments with your family.

Types of Living Benefits Riders

Understanding the various riders you can add to your life insurance policy is prudent. While some living benefit riders come at no extra cost, others might require an additional fee.

These add-ons can offer reassurance by ensuring your family’s well-being in case of unforeseen events during your lifetime.

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Terminal illness rider

A common feature in most term and permanent life insurance policies is the terminal illness or accelerated death benefit rider.

This rider, often included at no extra cost, allows policyholders early access to their death benefit upon being diagnosed with a terminal illness.

This provision enables individuals to use part of their death benefit for expenses such as medical bills while still alive.

To qualify for this benefit, one must be diagnosed with a terminal condition expected to result in death within 24 months.

Your life insurance contract will dictate how much of the death benefit can be accessed early, ranging from 25 percent to 100 percent of the total amount.

Accelerated Death Benefit Rider Example

Melody has an active $400,000 term insurance policy with an accelerated death benefit rider.

During her policy term, she was diagnosed with a terminal illness and was given less than 24 months to live.

Fortunately, her policy has a 75% accelerated death benefit, allowing her to use $300,000 before she dies, with the balance going to her beneficiary when she dies.

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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 as eating, bathing, getting dressed, 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 are often called hybrid long-term care insurance and are a great alternative to purchasing a standalone long-term care insurance 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 amount is a percentage that can range from 1% to 4% of your total death benefit.

An LTC rider will add to your monthly premiums and are only available on universal and whole life insurance.

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RETURN OF PREMIUM RIDER

You can add a return of premium rider to term insurance and some permanent life insurance policies to refund all your premiums at the end of a specified time frame.

Return of premium term insurance provides a living benefit if you are still living at the end of your initial term, so long as you don’t pass away.

When included with a universal life policy, it should viewed as a cash-out rider because you must cancel your policy to take advantage of it.

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 pays you a monthly income if you have become sick or injured, leaving you disabled and unable to work.

Like a traditional disability insurance policy, this rider helps replace a portion of your income to help pay your bills.

Most life insurance companies will pay an income for two years or until you have recovered and can continue working.

The income rider should not be confused with the cheaper disability waiver of premium, which waives only your premiums when a disability lasts more than six months.

Term Life Insurance with Living Benefits

Term life insurance offers affordable guaranteed premiums and death benefits over terms ranging from 10 to 40 years.

One of the advantages of term life insurance is that it often comes with a terminal illness rider at no extra charge. Meanwhile, chronic and critical illness, return of premium, and disability waiver riders are available for an additional cost.

Forbes Advisor highlights reputable insurers for those seeking 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.

The features and pricing of these riders differ across insurance companies, so choosing a policy that fits your financial objectives and personal situation is important.

Use our insurance calculator to compare life insurance rates online, ensuring you find inexpensive options that align perfectly with your requirements.

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Permanent Coverage with Living Benefits

Permanent life insurance provides lifelong coverage and includes a cash value component that builds wealth over time.

This category encompasses various forms, including whole, universal, and indexed universal life insurance, each offering unique advantages.

Although it offers extensive protection, whole and universal life insurance tends to be pricier and more complex than its term counterpart.

Nonetheless, for those interested in living benefit riders, many insurers exclusively reserve these options for their permanent policies.

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.

While most permanent policies include terminal illness riders at no extra charge, adding riders for chronic or critical illnesses or long-term care requires an additional premium.

Benefits of Cash Value Life Insurance

Tapping into the cash value of your permanent life insurance policy is accomplished through loans or direct withdrawals.

Securing a policy loan against your policy’s cash value is an option that offers lower interest rates and flexible repayment compared to traditional bank loans.

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

However, it’s crucial to remember that loans and withdrawals will reduce the death benefit for your beneficiaries dollar-for-dollar.

Moreover, if loans with accumulating interest are not repaid, they could deplete your policy’s cash value, causing it to lapse.

FAQ: The Living Benefits of Life Insurance

Is life insurance with living benefits worth it? Opting for coverage that includes living benefits can be a prudent choice if you’re seeking financial security and flexibility in the event of severe health issues. Evaluate various policies and riders and their associated costs to select the most suitable option.

Do you have to pay back the living benefits of life insurance? Living benefits enable you to access funds without needing repayment. These withdrawals are simply advances on your policy’s death benefit. Essentially, you’re not taking out a loan but instead utilizing your resources ahead of time, reducing the eventual payout to your heirs.

Does universal life insurance have living benefits? Universal life insurance offers living benefit riders for severe illness. It allows access to cash values through loans and withdrawals while you’re still alive, providing financial flexibility in times of need.

What are the disadvantages of living benefits? Utilizing a living benefit rider lowers your beneficiaries’ future payouts. It could also impact your eligibility for certain benefits like Medicaid and SSI due to increased income levels from the advanced funds.