Life Insurance with Living Benefits: Using Your Policy While Alive
Most customers purchase life insurance to ensure their family or loved ones are financially protected after they pass away.
Many people also use their policy for financial stability and flexibility while they’re still alive, which is called living benefits.
How Living Benefits Can Be Used
Living benefits are valuable for long-term financial planning and unexpected health conditions. They can often offer financial relief by allowing early access to your policy’s benefits. You can use these benefits to cover end-of-life medical costs. In some cases, living benefits can also allow you to take a “once in a lifetime” vacation to create special memories with loved ones.
Common Living Benefits and How They Work
Both of the main types of life insurance, term life insurance and permanent life insurance, offer living benefits, also known as accelerated death benefits. But the benefits that policyholders can receive differ from one policy to another.
Permanent Life Insurance Living Benefits
Permanent life insurance offers death benefits and allows you to build tax-deferred cash value. This value grows tax-free over time. In contrast, term life insurance doesn’t include this benefit.
The cash value component of permanent life insurance with living benefits includes:
Life Insurance Policy Loan: You can borrow against your permanent policy, often at a lower rate and with fewer restrictions than other lenders. Plus, you usually don’t need a credit check.
Life Insurance Policy Surrender: You can cancel your permanent life insurance policy and access its current cash value as a one-time lump sum.
Life Insurance Long-Term Care Benefits: Allows you to use your death benefit to cover long-term care expenses not covered by health insurance.
Terminal Illness Rider: Often automatically included in policies for people with a terminal illness who have a life expectancy of 6-24 months. Details may vary depending on the company.
Chronic Illness Rider: Chronic illnesses, such as ALS (Lou Gehrig’s Disease), heart attacks, kidney failure, cancer, and stroke often result in high medical bills. They can also shorten life expectancy. You can access your benefits if a chronic illness limits you in at least two of the six Activities of Daily Living (ADL), such as eating, bathing, dressing, using the toilet, transferring, and maintaining continence.
Long-Term Care Rider: If you can’t perform at least two ADLs, this rider offers a death benefit to cover long-term care expenses (although this rider type may be expensive).
Return of Premium: Often pricier than other policies, this benefit gives you access to all the premiums paid during your life insurance term, if you don’t pass away during the term.
Disability Waiver of Premium: This living benefit allows you to skip premium payments if you’re disabled for six months or more.
Term Life Insurance Living Benefits
Term life insurance offers living benefits that are often used to help with medical expenses, debt, or other rising costs, including:
Terminal Illness Rider: Often automatically included in policies for people with a terminal illness who have a life expectancy of six to 24 months. Details may vary depending on the company.
Critical Illness Rider: Critical illnesses can lead to high medical costs and a shorter life expectancy. Conditions such as ALS, heart attacks, kidney failure, cancer, and stroke often trigger this.
Disability Waiver of Premium. Today, people in their 20s have a 25% chance of facing a disability at some point before they retire. This could keep them from working for more than 90 days throughout their career. Even though this option isn’t a true cash benefit, it may allow you to skip your premium payments if you have a long-term disability for six months or more.
Cash Value Life Insurance Living Benefits
A permanent or whole life insurance policy typically includes a cash value insurance policy component. This allows you to withdraw funds from the cash value that builds up over time:
Your paid insurance premiums generate a cash value, which accrues as long as the premiums are paid.
Many people take a loan against the cash value of their insurance policy. This loan accrues interest and must be repaid in the future.
You can also surrender the policy and receive the cash value, minus a surrender fee. But if you don’t repay the loan, the policy will deduct it from the death benefit.
Choosing the Right Life Insurance Policy with Living Benefits
When looking for life insurance, find a policy that aligns with your long-term legacy, financial goals, and potential future needs. Consider the living benefits you might want if something unexpected happens.
Term life insurance is a popular and affordable way to protect your family’s financial security. With term insurance, you can choose your policy length, or term, for as long as you need it. The typical terms are 10, 15, 20, 25, and 30 years.
Whole life insurance is a standard permanent life insurance policy that provides lifetime coverage as long as the premiums are paid on time. It has a savings component called cash value. You can usually borrow from it to cover other financial needs.
Knowing the various policy types and their living benefits can help you choose life insurance with confidence.
SelectQuote Can Help Answer All Your Living Benefits Questions
Your legacy deserves better than a one-size-fits-all life insurance policy. Our licensed insurance agents can help you with long-term wealth protection and estate planning. We offer tailored life insurance quotes with living benefits from trusted carriers, personalizing the shopping experience to match your specific needs.
We quickly compare rates and policy details from dozens of insurance companies, helping you zero in on a policy with living benefits that works for you. It’s designed to provide financial security for your loved ones when you pass away, and stability if you become disabled or ill.
FAQs About Life Insurance Living Benefits
What are practical examples of living benefits in action?
Life insurance living benefits include access to funds for medical expenses during a terminal illness. You may also receive money after a critical illness, like a heart attack or stroke. This can help with recovery, lost income, and long-term care. You can even get a lump-sum payment or a loan from the accrued funds, depending on your policy type.
Which types of life insurance policies typically include living benefits?
Life insurance policies with living benefits often include permanent life and certain term life policies. These benefits may come standard or as optional add-ons, such as chronic illness or terminal illness.
How do living benefits affect the death benefit payout?
Using living benefits reduces the policy’s death benefit amount. This means beneficiaries will receive a smaller payout when the insured passes away.
Are there any drawbacks to adding living benefit riders to my policy?
Yes. Living benefits can be costly. They may increase your premium and, if used, lower your policy’s death benefit payout. Some riders also have strict eligibility requirements or waiting periods before you can access benefits.
