Living Benefits Life Insurance: Everything You Need to Know

Buying life insurance is an important step to protect your family. However, the many choices and types of life insurance available can feel overwhelming. 

What type of life insurance do you need? How much coverage should you get? Once you understand the basics, it is time to explore more specialized options. One of these is Living Benefits Life Insurance. 

What is “Living Benefits” Life Insurance?

When you purchase life insurance, you select an amount called a death benefit. The minimum amount of money that your beneficiaries will receive depends on the type of policy. This payment will be made if you die while your life insurance policy is active.  

Living benefits life insurance is typically offered as a rider that is added on to an underlying life insurance policy. As a rider, you gain additional benefits. These usually come at an extra cost to your premium. 

However, some companies may provide these benefits automatically with your life insurance policy. This type of rider is sometimes called an accelerated death benefit. 

A living benefit is a type of life insurance payout. It is available when you are terminally, critically, or chronically ill. This provides financial support to you and your family. 

Benefits of life insurance include helping to cover end-of-life expenses, medical costs, or long-term care. These can be very expensive, so it can be helpful to have a portion of the insurance money available.  

You could receive benefits in two ways: Partial or full acceleration. Most companies will let you choose how much you want to receive.  

Partial Acceleration is paid in lieu of a portion of the policy’s death benefit. Full Acceleration is paid in lieu of the policy’s death benefit. In the case of a full acceleration, the policy will be terminated after acceleration is paid.  

Living benefits are available as riders to both term life insurance policies and permanent life insurance policies. Some companies offer this at no additional cost.

When Can You Access Living Benefits?

It is essential to know the contents of your policy. Different insurers often have different conditions for when and how you can access the funds from your living benefits policy. 

Having a policy for a certain amount of time prior to accessing benefits is a requirement for some companies. This timeframe can vary significantly between different companies. 

Another factor would be the diagnosis. The payout for cancer stage 1, which has minimal impact on life expectancy, could be different to that of ALS. For example, the amount or percentage of the payout could vary.  

Some companies place a cap on how much of the death benefit you can access through a living benefit. The limit might be a fixed dollar amount or a percentage of the total death benefit. Some companies might charge interest on the portion of the living benefits you choose to access. 

In almost all cases, the amount you use will be subtracted from the total of your death benefit. 

How Do You Access Living Benefits?

Accessing living benefits is similar to other forms of insurance. To receive a payment, you must file a claim. Accessing living benefits usually requires a serious, long-term, or terminal illness or a condition that reduces life expectancy. You can expect to be asked to provide medical records and your doctor’s contact information.  

The insurance company will verify if your condition meets the criteria specified in your living benefit policy. Once verified, you will receive payment. 

Types of Living Benefits Riders

There are different types of living benefits insurance riders. The most common are terminal illness riders, chronic condition riders, critical illness riders.  

• A terminal illness rider allows a policyholder to access funds from their death benefit upon diagnosis of a terminal illness. Many terminal illness policies include an anticipated life expectancy range from six to 24 months.  
• A chronic condition rider permits a policyholder to withdraw from a death benefit of their chronic health condition. They need help with everyday tasks. They are unable to do at least two activities of daily living. Examples of such activities include getting help with eating or going to the bathroom. This rider would apply to someone who is permanently disabled, for example. 

• A critical illness rider offers an option. It allows a death benefit to be used for paying costs related to a qualifying critical illness. These are typically illnesses with high care expenses that significantly shorten life spans, such as ALS or life-threatening cancer. 

Pros and Cons of Using Your Living Benefits

What a living benefits rider offers is the opportunity to access some portion of the death benefit before you die. This can be useful if you are facing expensive costs for care. Especially if you or your family are not able to pay for end-of-life care. 

There are drawbacks to taking money from your death benefit. It is essential to contemplate these before submitting a living benefit request.  

The living benefits rider has a significant downside. If you choose to exercise this rider, your beneficiaries will receive a reduced amount upon your death. Receiving a terminal or critical illness diagnosis can be traumatic, especially for a family with young children. 

Under certain circumstances, filing a living benefits claim is an option. Some policies permit this benefit to be used for a once-in-a-lifetime trip.  

However, that could mean that the surviving spouse and children will have less of a safety net. Tapping into death benefit money could mean not being able to afford the mortgage or an inability to pay educational expenses. Since these are likely the reasons that a life insurance policy was purchased in the first place, it’s important to think through what exercising a living benefits rider will mean to the surviving spouse and family. 

Additionally, there could be fees that come with a living benefits rider. Like any fee, these eat away at the value of your policy and are worth bearing in mind. 

The Bottom Line

Ultimately, having a life insurance policy with a living benefits rider offers flexibility and additional peace of mind. Having the opportunity to access part of your life insurance policy’s death benefit if you need the money to pay for end-of-life care could be a financial option.  

Having options allows you to take into consideration your needs and what your family’s needs might be upon your death or prior. Since these needs change over time, having this additional and flexible option is an asset. 

Check with your agent or compare life insurance quotes online to see all of your available options.  

Disclaimer: 

All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Guaranteed Rate Insurance does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Guaranteed Rate Insurance. Guaranteed Rate Insurance, its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action.