Life Insurance with Living Benefits: What You Should Know

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 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 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.

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. This insurance benefit could allow you to access up to 50% of your death benefit while you are 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.

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 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 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 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 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.

Depending on your existing insurance policy, you may be able to add living benefit riders to it. These life insurance riders include:

These are just a few options for living benefits riders. To get a full scope of what may be available to your policy, discuss your options with a life insurance agent. Check out our What is an Insurance Rider article for more.

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.