Life Insurance with Living Benefits: What You Should Know

Key Takeaway

What happens if you need life insurance money while you're still alive? This is where life insurance with living benefits comes in handy. Living benefits allow policyholders to access part of their life insurance death benefit if diagnosed with a chronic or terminal illness, offering financial relief for medical bills or personal expenses while still alive. These benefits can be added to term or permanent life insurance through riders like accelerated death benefit or critical illness riders, often for an additional fee. Accessing living benefits can reduce the final death benefit paid to beneficiaries, so it's important to understand how withdrawals or loans affect your policy. The cost of living benefit riders varies depending on the policy and insurer, potentially increasing premiums by up to 25%.

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Accelerated Insurance Benefits: Living Benefits for Chronic or Terminal Illness

Most people think of life insurance as money for your loved ones after you die. But what if you need the insurance money while you’re still alive? Being diagnosed with a serious chronic condition or terminal illness can drain your finances quickly. Chronic and Terminal benefit riders allow you to access your insurance death benefit for qualified illnesses without paying taxes. Why are these insurance benefits tax-free? Because it is a prepayment of your death benefit.

You decide what you want to spend your accelerated life insurance benefit dollars for: for instance, you could apply the cash toward big medical expenses or paying off other kinds of debts such as auto car loans, credit cards, and home mortgages. Some people have even used the money for a dream vacation, allowing them to treasure the time they have left with family and friends and create memorable experiences.

After your death, depending on the portion of the insurance policy you used, your beneficiaries will receive a tax-free benefit payout.

How does living benefits insurance work?

Some universal life insurance policies let you accelerate part of your death benefit if you have a qualifying chronic, or terminal illness health event in states where available. It’s common for life insurance companies to require you to submit a documented medical prognosis that shows a life expectancy of less than nine months, but this span of time can vary from insurer to insurer, and from policy to policy. This insurance benefit could allow you to access up to 50% of your death benefit while you are alive.

Living benefits riders can be added to either term life insurance policies or permanent life insurance policies. These insurance riders often come with an additional fee, but your insurance agency may have other policy options available. A rider is an optional benefit that can be added to an existing policy.

Of course, riders aren’t the only way you can receive living benefits. Permanent life insurance policies can include cash value accounts. Cash value accounts are accounts in which a portion of your monthly premium is set aside into a savings account where it accumulates interest. Some insurance policyholders leave that money as an additional fund to the death benefit for beneficiaries, while others may choose to access portions of those funds while they are still alive.

Electing to receive accelerated benefits will impact your death benefit. The net amount paid to heirs depends upon any amounts you may have previously received through accelerated benefits, withdrawals, and/or loans. Often, these life insurance living benefits are paid out in one lump sum once your life insurance determines your situation qualifies for the living benefits payout. You should always consult with your insurance agent to best understand your policy payout options.

Finding Life Insurance That Includes Protective Living Benefits

When you’re building your life insurance policy, you need to consider whether or not you’ll want living benefits. You will want to research insurers that offer these benefits–specifically ones who offer accelerated death benefits or living benefits. These types of insurance can be offered for both permanent and term life insurance policies and usually require that you purchase a rider for an additional cost.

Some insurers, however, don’t offer living benefits as a rider, while others do. We recommend connecting with a licensed insurance agent to find the life insurance policy that suits your needs and budget best. An A professional insurance agent will be able to give you a more precise estimate on the rates of adding living benefits as a rider versus a separate insurance policy.

Once your insurance policy is built, the next step is applying for the actual living benefit coverage. For many life insurance policies, this may involve completing a medical exam, filling out a health-related questionnaire, in addition to filling out a life insurance application. There are certain life insurance products, such as guaranteed life insurance, that may allow you to bypass the medical exam and questionnaires. Each insurance company and each product vary.

Living Benefits of Permanent Life Insurance Policies

Living benefits allow you to access benefits of your life insurance policy before your passing. One common example of these life insurance benefits are cash value accounts.

Cash value life insurance policies can also offer living benefits. These accounts typically come with different forms of permanent life insurance, such as whole life insurance or universal life insurance.

A portion of the monthly insurance premiums goes into a cash value account attached to the policy, where it can accrue interest. This cash value account may be accessed for loans or withdrawals during the insurance policyholder’s lifetime, subject to the policy terms and conditions.

However, having access to these funds may be able to help you cover expenses like medical bills or pay towards your monthly insurance premiums, bringing down your out-of-pocket life insurance costs.

Living Benefits Insurance Policies: Options for Life Insurance Riders

Whether you have an existing, established policy or are in the early stages of building your first one, adding riders can help customize your life insurance. Depending on your existing insurance policy, you may be able to add living benefit riders to it. These insurance policies often have age limitations, certain health status conditions, and more. These life insurance riders include:

Living benefits riders

Rider Name	Purpose	Description
Terminal Illness Rider	Funds for terminal illness	Also known as an ‘accelerated death benefit rider,’ this insurance rider usually provides funds if the insured receives a covered terminal illness diagnosis during the policy's lifetime. Typically, these funds can be used for covering end-of-life care and expenses or anything else needed. These funds are typically reserved for when you have a life expectancy of under twelve months, but this depends on your specific policy.
Critical Illness Rider	Funds for specific serious illnesses	This rider usually offers funds to cover medical expenses for specific illnesses that come with high costs, such as stroke or kidney failure, even if not terminal. Illnesses that typically qualify for this type of rider include heart attacks, strokes, cancer, kidney failure, and major organ transplant. Some insurance policies may include a critical illness rider at no extra cost, while others may charge an additional premium.
Disability Waiver of Premium Rider	Waives premiums during disability	This rider usually allows the policyholder to stop paying premiums if they suffer from a covered disability that prevents them from earning an income. Some insurance policies may have a specific waiting period before the waiver can take effect but this depends on the insurer. Typically, the insurance policyholder will need to file a claim that includes a physician’s statement and a notice from the Social Security Administration (SSA) that confirms the disability.

Rider Name

Terminal Illness Rider

Purpose

Funds for terminal illness

Description

Also known as an ‘accelerated death benefit rider,’ this insurance rider usually provides funds if the insured receives a covered terminal illness diagnosis during the policy's lifetime. Typically, these funds can be used for covering end-of-life care and expenses or anything else needed. These funds are typically reserved for when you have a life expectancy of under twelve months, but this depends on your specific policy.

Rider Name

Critical Illness Rider

Purpose

Funds for specific serious illnesses

Description

This rider usually offers funds to cover medical expenses for specific illnesses that come with high costs, such as stroke or kidney failure, even if not terminal. Illnesses that typically qualify for this type of rider include heart attacks, strokes, cancer, kidney failure, and major organ transplant. Some insurance policies may include a critical illness rider at no extra cost, while others may charge an additional premium.

Rider Name

Disability Waiver of Premium Rider

Purpose

Waives premiums during disability

Description

This rider usually allows the policyholder to stop paying premiums if they suffer from a covered disability that prevents them from earning an income. Some insurance policies may have a specific waiting period before the waiver can take effect but this depends on the insurer. Typically, the insurance policyholder will need to file a claim that includes a physician’s statement and a notice from the Social Security Administration (SSA) that confirms the disability.

This is normally a comparative table on desktop, but is in a custom view on mobile.

These are just a few options for living benefits riders. Other options can include long-term care riders, which is a type of rider that usually pays out money tax-free from the death benefit to help cover long-term care if you are deemed unable to perform two out of the six activities of daily living (ADLs) for at least ninety days. These details may vary depending on your insurer and specific policy.

It’s important to note that not everyone is eligible for these types of riders. Eligibility is dependent on several factors, like your insurance company’s underwriting guidelines, the rider requested, and the type and term of the proposed policy.

There are situations in which you may not be able to cash out your rider benefits until the rider or policy has been in force for a specific duration of time. For example, the return of a premium rider on a term policy may only be available if the policyholder outlives the entire term.

To get a full scope of what may be available to your policy, discuss your options with a life insurance agent. Your insurance agent can help you explore the options you qualify for, as well as the potential benefits and costs. Check out our What is an Insurance Rider article for more.

Cost of Living Benefit Insurance

The cost of living benefit insurance or life insurance with living benefit riders can vary depending on the insurance company, policyholder and desired coverage. In some cases, adding an accelerated death benefit rider can increase your monthly premiums by as much as 25%. To get a better idea of how living benefits could impact your monthly premiums, contact your insurance agent for a quote.

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The information above is for educational use only and does not represent insurance, tax or legal advice. It is not a recommendation or solicitation to buy insurance. Please talk to your licensed insurance agent for more information about life insurance and your needs. Please consult with the appropriate professional for tax or legal advice. Guarantees are backed by the claims-paying ability of the issuing insurance company.

Article Author: Meredith Bell
Author Bio: Meredith joined Everly in 2022 and has 20+ years of experience in the life insurance industry. She has held various roles in advertising, marketing, communications, sales and distribution support, and product development. Outside of the office, Meredith lives with her daughter Kennedy and their dog Mavis. Meredith enjoys cooking, camping, gardening, hiking, and bourbon (though not always at the same time). She is a live music enthusiast and an avid reader. Her favorite quote is by Thomas Jefferson: "I cannot live without books." Meredith agrees, but would add cheese, movies, and dogs to that list.