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Living Benefits Life Insurance: Everything You Need to Know

Summary

Living benefits life insurance is typically offered as a rider to a standard life insurance policy.

  •  A regular life insurance policy pays your beneficiaries upon your death; a living benefits policy provides a portion of the payment while you are alive but chronically or terminally ill
  • There are pros and cons to using a living benefit so it is important to understand your policy

Buying life insurance is an important step you can  take to protect your family financially. However, the many choices and types of life insurance available can feel overwhelming. What type of life insurance do you need and how much coverage should you get? Once you understand the basics, it’s time to learn more about some of the more specialized options, like Living Benefits Life Insurance.

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What is “Living Benefits” Life Insurance?

When you purchase life insurance, you select an amount called a death benefit. Depending on the type of policy you have, this is the minimum amount of money that the policy will pay to your beneficiaries 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, it provides additional benefits, usually at an additional cost to your premium although some companies may offer this as an automatic benefit to your underlying life insurance policy. This type of rider is sometimes called an accelerated death benefit.

A living benefit is designed to provide you and your family with a portion of the life insurance payout while you are still alive but terminally, critically or chronically ill. The benefit of this is that you can use a portion of your life insurance money to help with things like end-of-life expenses, medical costs, or long-term care, which can be very expensive. 

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’s very important to understand what is in your policy, because different insurers will likely have differing scenarios on when and how you can access funds from your living benefits policy.

For example, you might need to have had the policy for a defined amount of time prior to accessing benefits, and that amount of time can vary considerably from one company to another. Another factor would be the diagnosis. The amount or percentage of the payout could be different for cancer stage 1 with minimal change to life expectancy compared to  ALS, for example. 

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 your living benefits is similar to other forms of insurance in that you will need to file a claim to receive a payment. Since accessing living benefits is generally contingent upon a critical, chronic, or terminal diagnosis or similar lifespan-shortening condition, you should expect to be asked to provide medical records and contact information for your doctor or primary care provider. 

After the insurance company has verified that your condition meets the parameters established in your living benefit policy, 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 means they need assistance with everyday activities or is unable to perform at least two activities of daily living, such as help with eating or going to the bathroom. This rider would apply to someone who is permanently disabled, for example.
  • A critical illness rider would allow for funds from a death benefit to be used to pay costs associated with 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 very helpful when facing large costs for care, particularly if you or your family are otherwise unable to afford end-of-life care.

There are some downsides to pulling money from your death benefit, and it’s important to consider these before filing a living benefit claim. 

The biggest and most obvious downside is that if you decide to exercise a living benefits rider, your beneficiaries will receive less money upon your death. Receiving a terminal or critical illness diagnosis can be traumatic, especially for a family with young children. Under these conditions, a person might be tempted to file a living benefits claim and go on a once-in-a-lifetime trip (some policies allow for this use of a benefit). 

However, that could mean that the surviving spouse and children will have less of a safety net. Ultimately, 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 associated with using a living benefits rider. Like any fee, these eat away at the value of your policy and are worth bearing in mind.

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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 should be viewed as 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.