What is life insurance with living benefits?

When most people shop for a life insurance policy, they generally focus on the death benefit their loved ones will receive. But did you know that life insurance coverage can also offer financial assistance to you, the insured?

We are talking about living benefits— funds you can tap into during your lifetime. These benefits can provide much-needed financial support if you receive a chronic or terminal illness diagnosis or need long-term care.  

Continue reading to find out what living advantages are, how you can claim them, and why they may be worth the cost.  

What are life insurance living benefits?

Living advantages, also known as accelerated death benefits, are riders attached to a policy that allow the insured to access a part of the death benefit while they are still alive. They are available with both term and permanent life insurance policies.  

Some living advantages may already be included in your policy. If your policy does not offer these benefits at all or does not offer the ones you think you may need in the future, you can buy them for a small fee.  

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If your illness qualifies for accelerated death benefits, you can use the benefits to pay for medical expenses, such as nursing home or hospice care, medical care, and more. The maximum percentage of death benefit you can access will depend on your policy. Most life insurance policies, however, allow the insured to withdraw up to 80% of the policy’s proceeds.  

Keep in mind that when you claim benefits while still alive, the death benefit is typically reduced in proportion to the amount withdrawn.

Below are some of the most common living advantages that you can include with your policy.

1. Critical Illness rider

A critical illness rider is a form of critical illness insurance that allows you to collect a part of the death benefit while you are still alive if you are diagnosed with a qualifying illness. Qualifying medical conditions generally include cancer, amyotrophic lateral sclerosis (ALS), Alzheimer’s disease, heart attack, and stroke, among others. These riders are typically added to your life insurance coverage to provide added financial security. 

2. Chronic Illness rider

‍A chronic illness rider allows you to accelerate a part of the policy’s proceeds if you are diagnosed with a chronic illness and can no longer independently perform at least two of the six activities of daily living: bathing, dressing, eating, toileting, cleaning, and transferring.  

3. Terminal illness rider

A terminal illness rider lets you withdraw a portion of the death benefit if you develop a terminal illness and are not expected to live long. Different insurance companies have different life expectancy timeliness for the terminal illness rider. Generally, the terminal illness rider is included in most policies.  

4. Long-term care rider

If you need long-term care, this rider allows you tap into your death benefit. Keep in mind that you can use the funds only for long-term care expenses.  

Living Benefits Pros and Cons

Life insurance with accelerated death benefits is not necessarily the right choice for everyone. If the idea of financial protection for illness or long term care appeals to you, this type of insurance may be a good fit.

On the other hand, these benefits often add an additional cost to your monthly premiums, and it will reduce the value of your death benefit if you use the funds while you're still alive. Also, not every condition will qualify you to receive payouts while still alive, so make sure to pick a policy that fits your needs. For example, if you work a physically dangerous job such as construction, and purchase a terminal illness rider, the policy will likely not protect you in the even that you are injured at work.

Check out the chart below for some of the major pros and cons.

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How Much Do Living Benefits Cost?

The cost of life insurance depends on many factors. These include:  

The type of policy you buy

Typically, premiums for term life insurance policies are 10-15 times more affordable than comparable permanent life insurance plans.  

The coverage amount

Your premium rate is directly related to the amount of death benefit you buy. If the latter goes up, your premium will increase.  

Your age and health

Insurance companies offer their best rates to young and healthy applicants. The older you are, the costlier the insurance premiums will be. Likewise, if you have one or more underlying health issues, the cost of coverage will go up.  

Your smoking status

Smoking is not only bad for your health but also wealth. If you smoke or consume tobacco in any other form, brace yourself for higher premiums. Typically, a smoker pays three to five times as much for a policy than a non-smoker.  

Your Gender

Women tend to live longer than men, and as such, receive lower rates.  

The types of living benefits you buy

Some benefits are costlier than others. For example, a long-term care rider usually costs more than a terminal illness rider. Your overall cost of coverage will depend on the types of life insurance with living benefits you add to the base policy.  

When Can I Claim My Living Benefits?

You can file a claim for life insurance with living benefits when a qualifying event occurs. The qualifying events depend on the type of living benefit available and the terms of your life insurance contract. Common accelerated death benefit riders available include a critical illness rider, terminal illness rider, chronic illness rider, and long-term care rider.

Here are some examples of events that may qualify you for benefits while you are still alive:  

• You are diagnosed with a terminal illness and have a life expectancy of two years or less.
• You have a chronic illness, for example Alzheimer’s disease, which prevents you from performing at least two of the six activities of daily living advantages.
• You develop a critical illness, for example kidney failure or stroke, and have a shortened life expectancy.
• You need long-term care services, like in-home nursing.

Can I Use My Life Insurance While I'm Alive?

The short answer is yes, under certain circumstances. Some permanent and term life insurance policies offer "living advantages," optional extras that allow you to access part of your death benefit under specific conditions during your lifetime.

However, these benefits aren't standard in all policies. If your policy doesn't have them, you can add them for an extra charge. The price of these add-ons varies based on factors like policy type, your age, health, and the chosen living advantages.

Keep in mind, claiming your living advantages reduces the death benefit, resulting in a smaller payout to your beneficiaries. Despite this, living benefits can offer essential financial aid when you need it, making them a worthwhile addition to many policies.

Conclusion

Life insurance with living benefits are add-ons available with a life insurance policy, either at no additional cost or for a small fee. They allow you access a portion of the death benefit — usually up to 80% — when a qualifying event occurs.

Circumstances that may mean you need to access your life insurance while you're alive include chronic illness, critical illness, and long term care.

You can use the funds to cover medical expenses not included in your healthcare plan. In most cases, your death benefit is reduced in proportion to the amount you withdraw early.

Frequently Asked Questions (FAQs)

Do all life insurance policies have living benefits?

Not all life insurance plans have living benefits by default, but many do. If your policy does not include living benefits; you can add them by paying an extra fee.  

‍Is life insurance with living benefits worth it?

Although it may not be the cheapest, purchasing life insurance with living benefits is often worth it for individuals who are likely to develop an illness, or who work a dangerous job. In this case, the living benefits can offer reassurance that you will be protected financially if you develop an illness or disability.

‍How does term life insurance work? 

Term life policies last for a specified period of time, usually 10, 20, or 30 years. If you die during the term, your beneficiaries will receive a death benefit. On the other hand, if you live, the policy will expire at the end of the term unless you renew it or convert it to a whole life policy. 

‍How does whole life insurance work? 

Whole life or permanent life insurance works exactly as it sounds: it lasts for your entire life, as opposed to term life which only lasts for a set number of years. Whole life insurance also includes a savings component, called cash value, which you are able to access during your lifetime.