What is life insurance with living benefits?

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

We are talking about living benefits — funds you can tap into during your lifetime. Living 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 benefits are, how you can claim them, and why they may be worth the cost.  

What is life insurance living benefits?

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

Some living benefits may already be included in your policy. If your policy does not offer living 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.  

If your illness qualifies for living 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Keep in mind that when you claim living benefits, the death benefit is typically reduced in proportion to the amount withdrawn.

Some of the most common living benefits are:  

Critical Illness rider: It 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.  

Chronic Illness rider: It 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.  

Terminal illness rider: It 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 life insurance policies.  

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.  

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.  

How Much Does Life Insurance With Living Benefits Cost?

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

The type of policy you buy

Typically, premiums for term life policies are 10-15 times more affordable than comparable whole 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

Life insurance companies offer their best rates to young and healthy applicants. The older you are, the costlier the life insurance is. 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 life insurance as 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 living 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 living benefits you add to the base policy.  

When Can I Claim My Living Benefits?

You can file a claim for 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 benefits riders available with life insurance plans include:  

• critical illness rider
• terminal illness rider
• chronic illness rider
• long-term care rider.

Examples of events that may qualify you for living benefits are:  

• 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.
• 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 Alive?

The short answer is yes. Some life insurance policies offer "living benefits," 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 benefits.

Keep in mind, claiming your living benefits 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 life insurance policies.

Conclusion

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.

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.