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Published: Sep 21, 2023 14 min read

Life insurance coverage is a security net that provides monetary benefits and gives you the peace of mind of knowing your loved ones will have financial assistance after you’re gone. However, most people overlook the importance of life insurance with living benefits. These features add a new layer of value to traditional life insurance policies.

While conventional life insurance aids your beneficiary’s financial stability after your death, life insurance with living benefits can provide you with funds when you need them the most during your lifetime. Keep reading for a thorough discussion of everything you need to know about life insurance with living benefits, including pros and cons, what’s required to access these benefits and how to choose the right life insurance policy for your needs.

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What are the living benefits of life insurance?

Life insurance can be confusing. If you’re wondering what the living benefits of life insurance are, you may first want to understand the basics of life insurance and its benefits. If you’re new to the subject in general, you may wish to start with our guide to life insurance for beginners.

The “living benefits” of life insurance are typically riders — special provisions that add or amend benefits for a policy — that provide financial support during your lifetime if certain conditions are met. (You may wish to read more about what insurance riders are if you’re unfamiliar with them.) If you have a life insurance policy with a living benefits rider, you may be able to access living benefits while you’re still alive if you experience certain illnesses and need the money for care.

There are three primary types of living benefits that policies may cover:

1. Critical Illness: A policyholder can access these benefits, typically to pay for medical expenses, if diagnosed with a severe or terminal illness specified within the policy, such as cancer, heart attack, stroke or other life-threatening conditions. Whole life insurance with living benefits coverage can be especially applicable.

2. Chronic Illness: The life insurance company grants these benefits to the policyholder if they can’t perform basic daily living activities due to chronic illness or aging. These activities typically include dressing, bathing, eating, using the restroom, continence and transferring (moving in or out of a bed or chair).

3. Terminal Illness: These benefits would apply to a policyholder with universal life insurance with living benefits or other forms of coverage with a terminal illness rider who is diagnosed with an illness likely to result in death within a specified time frame (typically six months to one year).

It’s important to note that accessing living benefits reduces the death benefit paid to beneficiaries upon the policyholder’s death. If your main life policy’s death benefit decreases, you may wish to look into purchasing additional life insurance or examine how much life insurance you need to ensure your loved ones are financially covered.

Which type of life insurance provides living benefits?

Living benefits can be provided by both term life insurance and permanent life insurance policies, yet the nature and operation of these benefits can vary considerably. Living benefits are generally not part of term life insurance policies but can be included through the purchase of an added policy component, known as a rider.

Term life insurance riders offering living benefits commonly consist of an Accelerated Death Benefit (ADB) rider, which lets you tap into a fraction of your death benefit while you’re alive and diagnosed with a terminal illness. Likewise, a Chronic Illness Benefit (CIB) rider provides the same benefits if a chronic illness should inhibit your ability to work.

Living benefits aren’t typically integral parts of permanent life insurance policies either but may be accessible through similar types of riders from your life insurance company. Selecting the right life insurance policy and riders will hinge on your needs and circumstances.

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Pros and cons of living benefits in life insurance

It’s important to weigh the pros and cons of living benefits in life insurance before you decide whether it’s right for your circumstances. If you’re considering this type of policy, you should talk to your insurance agent to get more information and understand how it would work in your situation.

The pros

Financial protection for critical illnesses

If you should experience a critical illness that requires extensive medical treatment, living benefits coverage can enable you to access a portion of your life insurance death benefit ahead of time. This can significantly reduce the financial stress often associated with critical illnesses by providing funds for medical expenses, care needs and other costs.

The death benefit amount that can be accessed ahead of time may also vary by policy. While the provision of such living benefits can result in reduced death benefits payable to beneficiaries upon the policyholder’s death, they fulfill an immediate financial need, providing comfort and security during challenging times.

Coverage for chronic illnesses and long-term care needs

Accessing a portion of your death benefit while still alive can substantially alleviate the financial strains often accompanying chronic illness. Living benefits of life insurance can also be used to fund long-term care services, which can be very costly. Here again, living benefits can come to your rescue by helping you cover these costs.

Death isn’t required to access benefits

While life insurance conventionally provides financial protection to loved ones after a life insurance policyholder’s death, the living benefits of a life insurance policy can help policyholders while they’re still alive. Under certain circumstances, such as the diagnosis of a terminal, chronic or critical illness, policyholders can “accelerate” their death benefits. This means they can draw from the policy’s death benefit to cover costs related to their needs.

The cons

Reduced death benefit

If you should have to use some of your policy’s living benefits, this disbursement of funds reduces the death benefit that your beneficiaries would receive upon your death.

It’s a trade-off between addressing immediate financial needs and ensuring future financial security for your beneficiaries. The significance of this decision should be thoughtfully considered in conversation with financial advisors, taking into account your individual health conditions, financial responsibilities and family situation.

Restrictive eligibility criteria

Not every life insurance policyholder is eligible to access living benefits. These benefits often come with restrictive eligibility criteria that must be met to tap into your policy while you’re still alive.

These stipulations often revolve around severe health conditions. For instance, a terminal illness diagnosis in which the policyholder’s life expectancy is significantly shortened is a common eligibility criterion.

Sometimes, the onset of a critical illness such as stroke, heart attack or invasive cancer can also qualify a policyholder for living benefits. Even the best living benefits of life insurance will have specific eligibility rules, which vary by policy and insurer.

Higher life insurance premiums

Incorporating living benefits into your life insurance policy can significantly enhance its utility, transforming it into a vehicle for financial assistance during trying times. However, this added layer of protection and flexibility comes at a cost, typically resulting in higher premium payments than traditional life insurance policies that don’t have this feature. Life insurance with living benefits tends to cost more because the insurance company may be at elevated risk of incurring an earlier payout.

How to choose the right life insurance policy with living benefits

1. Evaluate your individual needs and health status

Before deciding on a life insurance policy, assess your needs and health status. You can better understand your life insurance requirements by considering factors such as your age, lifestyle and future financial obligations. If you have more dependents or debts, for example, you might need a policy with a larger payout.

2. Research living benefits options

Living benefits are perks offered by life insurance policies that allow you to access a part of your death benefits while you’re still alive — but only under certain circumstances, such as being diagnosed with a chronic or terminal illness or needing long-term care.

3. Compare life insurance policies and riders

After researching life insurance plans with living benefits, carefully compare different policies and riders. This involves comparing aspects such as premium cost, coverage supplied, exceptions and exclusions, policy term, claim settlement ratio of the insurer and so on.

4. Check eligibility criteria

Insurers have rules regarding who qualifies for life insurance policies with living benefits. Be sure to check the eligibility criteria before buying.

5. Understand policy terms and conditions

Once you've verified your eligibility, take the time to review the life insurance policy's terms and conditions thoroughly before signing up. Be aware of when — and under what circumstances — the living benefits can be claimed and how claiming these benefits could reduce the death benefit.

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Is life insurance with living benefits worth it?

Life insurance with living benefits can provide financial security during your lifetime in the event of a severe illness or disability. However, the worth of these policies depends on individual circumstances and financial needs. Consulting with a financial advisor or insurance professional can help you determine whether this particular insurance suits your needs.

Can I add living benefits to an existing life insurance policy?

Yes, it’s possible to supplement your existing life insurance policy with living benefits. The availability of specific living benefits hinges upon the nature of your life insurance policy and your insurance company.

Adding living benefits to a life insurance policy often involves applying for a rider. Riders are additional agreements appended to your policy, and they detail the terms of your living benefits, including the amount of money you can access and under what conditions.

The costs of supplementing your existing life insurance policy with living benefits vary depending on many factors, including the chosen benefits and your insurance company.

How do I make a claim for living benefits?

Making a claim for living benefits varies depending on the insurance provider and the kind of living benefit you intend to claim. Regardless of the specific procedure, some general steps need to be taken.

First, inform your insurance provider about your intention to make a claim for living benefits. Supply the necessary documentation to support your claim, such as a doctor’s diagnosis confirming your condition. The insurance company will then review your claim for approval.

Once the claim is approved, the benefits will be issued to you or your nominated beneficiary. The amount of time it takes to process a claim for living benefits can vary considerably depending on the insurance provider and the specifics involved in the claim.

Summary of Money’s guide to life insurance with living benefits

Life insurance traditionally serves as a financial safety net for beneficiaries after death. Living benefits enable policyholders to access a portion of their policy’s payout during their lifetime under specific circumstances, most notably in the event of severe illnesses.

Provided under “Accelerated Benefit Riders” or similar policy additions, these living benefits can offer financial relief for costs associated with critical, chronic or terminal illnesses. This coverage could help pay medical expenses, long-term care costs and other financial burdens. However, it’s important to note that claiming living benefits often decreases the eventual death benefits provided to beneficiaries.

Living benefits can be a part of both term and permanent life policies through extra provisions known as riders. The specifics of these benefits can vary vastly based on individual policies and insurance companies. Choosing the correct life insurance policy depends on your particular circumstances and needs.

Living benefits have their share of pros and cons. While they offer financial assistance for critical illnesses or long-term care needs, they can also reduce the death benefit received by beneficiaries and often come with restrictive eligibility criteria. Adding living benefits to an existing life insurance policy could also result in higher premiums.

When choosing a life insurance policy with living benefits, it’s crucial to evaluate your individual needs. Before making decisions, you should research various living benefits options, compare policies, understand the eligibility criteria and, most importantly, comprehend the policy terms and conditions.

When filing a claim for such benefits, policyholders must inform their insurance company, provide necessary documentation supporting their claim and wait for approval. Notably, the processing time and success of such claims can depend on the insurance company and the situation’s complexity. Understanding the specifics of the claim procedure can greatly aid decision-making and future planning.

Interested in learning more about life insurance? Check out this guide to the best life insurance options currently available.

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