Living Benefits of Life Insurance

Living benefits offer policyholders the option to withdraw funds while they're still alive. Learn more about how to use living benefits.

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Life insurance and living benefits

Despite its name, life insurance is meant to benefit you and your loved ones after death. But did you know you could also use life insurance benefits while you’re still here? Selecting a rider with living benefits can offer funds to tap into while you’re still alive. This type of rider is available for both term life and whole life insurance policies. With term life policies, living benefits are accessed via riders that you pay to add on to your policy. Whole and universal life insurance policies operate on a cash value system, allowing policyholders to draw funds from that pool of money without any riders. Read on to learn more about living benefits and what they can be used for. 

Key takeaways

  • Life insurance policies with living benefits provide access to funds while still alive
  • Living benefits can cover medical or long-term care expenses, via riders or cash value
  • Living benefits types include ADB riders for terminal, chronic, or critical illness, and LTC riders
  • Accessing living benefits reduces death benefits to beneficiaries; cost and availability vary

Living benefits of term life insurance: explained

With term policies, living benefits are included in two types of life insurance riders: accelerated death benefit (ADB) riders, of which there are three, and the long-term care (LTC) rider. Some living benefits are automatically included in a policy at no additional cost, but others are considered add-ons and will increase your premium. 

Living benefits are designed to provide policyholders with access to a portion of their death benefit while they are still alive. For example, living benefits may help you cover costs related to medical care in the case of an extreme health concern, like a terminal or chronic disease. The National Cancer Institute calculated the average cost of medical care and drugs tops $42,000 in the year following a cancer diagnosis. Some treatments can exceed $1 million.[1] Even on the low end, that’s more than half of the average American’s yearly salary.

These funds are most often accessed when a medical diagnosis indicates that the policyholder has a terminal illness. In order to receive a payout from a rider with living benefits, a medical professional needs to conduct an exam and confirm you only have 6-12 months to live. In this case, one of the ADB riders would be used. 

Accelerated death benefit riders include:
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Terminal illness

For an illness in which you are given a terminal diagnosis, you can use your living benefits to cover end-of-life care and associated costs. This one is often automatically included in your policy.

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Chronic illness

This rider is applicable if a chronic illness prevents you from performing a minimum of two of the six activities of daily living — bathing, eating, getting dressed, toileting, transferring and continence.

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Critical illness

An illness that shortens life expectancy and incurs high medical bills is considered critical. You can access living benefits with the critical illness rider after a serious medical event like a stroke, heart attack, or kidney failure.

Long-term care rider
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Long-term care

The long-term care rider is most similar to the chronic illness section of ADB riders. The LTC rider is meant to provide additional benefits for long-term care expenses. It is activated when a medical condition prohibits you from performing two of the six activities of daily living. This rider is considered an add-on and will significantly impact your premiums — it is not automatically included like the terminal illness benefit. 

Comparison of different types of available living benefits
Type of Living Benefit Description How it is activated Cost Benefit
Accelerated Death Benefit (ADB) for terminal illness Provides access to a portion of the death benefit for terminal illnesses where life expectancy is 6-12 months. Medical professional conducts an exam and confirms the policyholder has 6-12 months to live. Some policies include this automatically; others may require an add-on rider for an additional cost. Policyholder can use the living benefits to cover end-of-life care and associated costs.
ADB for chronic illness Provides access to a portion of the death benefit for chronic illnesses that prevents performing a minimum of two of the six activities of daily living. Medical professional conducts an exam and confirms that the policyholder meets the eligibility criteria. Typically requires an add-on rider for an additional cost. Policyholder can use the living benefits to cover long-term care expenses.
ADB for critical illness Provides access to a portion of the death benefit for serious medical events, such as a stroke, heart attack, or kidney failure. Medical professional confirms the diagnosis. Typically requires an add-on rider for an additional cost. Can be used to cover high medical bills associated with critical illness.
Long-term care (LTC) rider Provides additional benefits to cover long-term care expenses if unable to perform two of the six activities of daily living. Medical professional confirms the diagnosis. Requires an add-on rider for an additional cost. Policyholder can use the living benefits to cover long-term care expenses.
Cash value Provides access to the cash value accumulated in permanent life insurance policies. Accessed through policy loans, policy surrender, or using the cash value to pay premiums. Typically built into permanent life insurance policies without additional riders. Can be used for purposes such as medical expenses or supplementing retirement income.

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Living benefits of permanent life insurance

The living benefits associated with term policies are most often included in riders for which policyholders pay extra to include. For whole and universal life insurance — both types of cash value life insurance policies — policyholders can withdraw from the cash value accrued in these policies without needing to add riders. In other words, these policies include living benefits through cash value. 

There are a few ways you can access the funds from your permanent life insurance policy's cash value. Living benefits of whole and universal life insurance policies are included in the following features:

  • Policy loan: You can put up the cash value accumulated in your policy as collateral if you need to take out a loan for any purpose. 
  • Policy surrender: Surrendering your policy would effectively end your coverage, but you would be allowed to collect the accumulated cash value to use as a living benefit. It's important to note that this option will remove your death benefit as the coverage is no longer active. 
  • Premium payments: You can use your cash value to pay premiums in whole and universal life insurance policies. 
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How do living benefits work?

The living benefit pulls from your death benefit in term policies, so if you need to access funds to cover medical or end-of-life expenses while you’re alive, you can. However, accessing living benefits reduces the death benefit available to your beneficiaries after you die, as you have already withdrawn from that pool of money. 

Accessing living benefits requires filing a claim with your life insurance company. The company will ask for documentation supporting your medical diagnosis and your payout may come as a lump sum or be dispensed periodically. Keep in mind that there also may be a limit to the amount you can withdraw, depending on your death benefit. Also, if you repay the amount you've withdrawn, your death benefit may be fully reinstated.


How to get a life insurance policy with living benefits 

In most cases, living benefits are included in insurance riders that a policyholder elects to add to their term life insurance policy. Riders of any kind will increase your policy premium, but remember that the terminal illness rider is often included in a standard life insurance policy. A permanent, cash value insurance policy will have funds you can consider living benefits if needed.

Most people opt to include riders when they first enroll in a life insurance policy, so if you’re shopping for a new policy, it’s a good time to explore your options. It is possible to add on riders later, but a waiting period may be enforced before you can make a claim and access the funds.

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Frequently asked questions

Life insurance rates depend on a variety of factors, so the best way to understand premiums for your situation is to get a life insurance quote. Additional riders will increase your premium, so be sure to talk to your insurance provider about what their options are for living benefits.

Riders with living benefits are available to add to both term and whole life insurance policies.

As with most insurance necessities, the decision to include certain life insurance coverages depends on your unique situation. For people with high-risk jobs or hobbies, the accidental death rider might be an option worth exploring. Before adding riders to your policy, it is important to examine the terms of the agreement and understand the qualifications that need to be met in order to receive compensation from the life insurance company.


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