Living benefits are life insurance policy features or add-ons that give you access to some of the death benefit while you’re alive, usually due to serious illness.
A life insurance policy is meant to create a financial safety net for your family when you pass away. But life insurance policies with living benefits allow you to access some of the death benefit while you’re alive using optional add-ons called riders.
Living benefits pay out some percentage of your death benefit to cover expenses related to terminal or critical illness. Though using your living benefits reduces the cash benefit your beneficiaries receive, it helps you cover high end-of-life medical costs so that your loved ones don’t have to.
Living benefits give you the option to use some of your life insurance proceeds while you’re alive.
You can only use the funds for end-of-life care and only if you have a qualifying health condition, like a terminal illness.
Living benefits are usually provided through optional policy additions called riders.
Life insurance with living benefits is a life insurance policy that has riders that allow you to withdraw from your policy’s proceeds. The proceeds can only be used to pay for end-of-life medical expenses. These are sometimes called living benefits riders or accelerated death benefit riders.
Some living benefits riders may be included automatically in your life insurance policy at no additional cost. You’ll need to prove the severity of your illness to qualify, but if you do, you may be able to withdraw up to 80% of your policy proceeds for your expenses.
If you don’t have the funds to support your end-of-life care, living benefits protect your family from becoming responsible for those costs. Using your benefits will reduce the lump-sum payment intended for your beneficiaries, so you’ll need to decide how much of the money to use.
The cost for a life insurance policy with living benefits depend on the premium you’re given after underwriting and which riders you add to your policy. Term life insurance premiums vary based on your age, health, medical history, coverage amount, and more.
A 35-year-old nonsmoker without any complex health concerns could pay as little as $25-30 per month for a $500,000, 20-year term insurance policy with an included terminal illness rider. That same person would pay significantly more if they added a long-term care rider.
Living benefits riders can only pay for qualifying end-of-life expenses like hospice care, nursing home care, and in-home caretakers. Some are free, while others may require an additional premium. The most common living benefit riders are:
Terminal illness rider: This is often automatically included in your policy. To qualify, you’ll need to have a terminal diagnosis with a life expectancy from 6-24 months (the exact timeline varies by insurer).
Chronic illness rider: Gives access to your benefit if a chronic illness prevents you from performing at least two of the six Activities of Daily Living (ADL)—eating, bathing, getting dressed, toileting, transferring, and continence.
Critical illness rider: Covers qualifying critical illnesses that come with high medical costs and shortened life expectancy, such as ALS, heart attack, kidney failure, life-threatening cancer, and stroke.
Long-term care (LTC) rider: Disburses some death benefit only for long-term care expenses if you can no longer perform at least two ADL. Life insurance with an LTC rider is costly, and is sometimes called hybrid long-term care insurance.
Each of these riders have some restrictions on who qualifies and how much of the death benefit you’re able to access. Instead of being paid in a lump sum, you’ll get living benefits on an as-needed basis.
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Living benefits typically refers to living benefits riders. However, cash value funds found in permanent life insurance are sometimes categorized as living benefits.
Some permanent insurance features allow you to access your cash value while you’re alive, but not your death benefit:
Paid up additions: Additional coverage purchased with accumulated cash value funds.
Policy loans: Loans taken against your account using the cash value as collateral. The loans can be used for any purpose.
Policy surrender: Giving up your policy in exchange for any cash value. You’ll lose insurance protection and the funds may be taxable.
Permanent life insurance is not the best way to get living benefits, since cash value interest rates are relatively low and premiums are 5 to 10 times higher than term life rates. To pull cash from your policy’s death benefit, you’ll still need to use a rider.
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End-of-life care is costly, but living benefits can provide some financial relief to you and your family in your final days. Work with an independent insurance agent to find a life insurance policy with the living benefits you need.
Living benefits are additional features for your life insurance policy that allow you to use some of your death benefit to pay for end-of-life care before you die.
Both term and permanent life insurance comes with the option to add living benefits riders to your policy.
It depends on your circumstances. Most life insurance policies come with at least one living benefits rider (a terminal illness rider), but if your family has enough savings, you may not need to use any living benefits.