Life Insurance with Living Benefits: What You Need to Know

Life insurance is traditionally meant to protect your loved ones financially after you pass away. But some policies also offer support while you’re still alive through living benefits, also known as accelerated benefit riders (ABRs). These allow you to access a portion of your policy’s death benefit if you’re diagnosed with a qualifying illness or condition.

Living benefits can help cover medical bills, caregiving needs, or everyday expenses during a serious health event, providing peace of mind when it matters most. While this early access can be a lifeline, it’s important to understand that any amount used will reduce the death benefit paid to your beneficiaries.

Coverage and eligibility vary by insurer, but for many people, this added flexibility makes life insurance with living benefits a valuable part of a well-rounded financial plan. In this guide, we’ll explain how it works, who it’s for, and how to choose the right policy.

Common Living Benefit Riders

Many life insurance policies include one or more living benefit riders that let you access a portion of your death benefit while you’re still alive. These riders are generally grouped under the umbrella of accelerated benefit riders, which are designed to provide financial relief in the face of serious health challenges.

Here are the most common types of ABRs:

Chronic Illness Rider

This rider allows access to your policy’s death benefit if you’re diagnosed with a chronic condition that prevents you from performing at least two activities of daily living (like bathing, eating, or dressing) without assistance; or if you’re diagnosed with a condition that leaves you cognitively impaired. Qualifications vary from insurer to insurer, so it’s important to understand what’s covered.

Critical Illness Rider

If you experience a serious health event like a heart attack, stroke, or cancer diagnosis, a critical illness rider may let you tap into your death benefit early. Each insurer defines what counts as a “critical illness,” so it’s important to review the list of covered conditions before buying a policy.

Terminal Illness Rider

This rider allows you to access part of your death benefit early if you’re diagnosed with a terminal illness, typically with a life expectancy of 12 to 24 months.

Types of Life Insurance That Offer Living Benefits

Not all life insurance policies include living benefits, but many modern term and permanent policies now offer ABRs as a standard feature or optional add-on. Here’s how living benefits work across different policy types:

Term Life Insurance with Living Benefits

Term life insurance is often the most affordable option for coverage, and many term policies now include ABRs, especially for terminal illness.

Term life insurance with living benefits typically allows you to access a portion of your death benefit if you meet specific health criteria. Since term life doesn’t build cash value, the living benefits come directly from the face value of the policy. Using them reduces the amount your beneficiaries will receive after your death.

Living benefits in term life policies can offer significant value without adding much cost, and some insurers include these riders automatically. Term life is especially well-suited for people looking for affordable coverage that can provide support during a major health crisis.

Permanent Life Insurance with Living Benefits

Permanent life insurance can include whole life insurance with living benefits, or universal life insurance with living benefits. These types of policies typically include more options when researching what are living benefits of life insurance.

In addition to ABRs, permanent life insurance policies often build cash value you can access while alive. For instance, if you’ve accumulated significant cash value and face high medical expenses, you might choose to withdraw or borrow from it instead of using your accelerated benefit. This can help preserve the full death benefit for your beneficiaries.

Permanent policies can offer more flexibility and built-in features, but they’re usually more expensive than term. For someone seeking both lifetime coverage and access to living benefits, permanent life may be a better long-term fit, but it’s important to weigh the higher premiums against your financial goals.

Pros and Cons of Life Insurance with Living Benefits

Living benefits can offer significant value, but it’s important to understand both the advantages and the potential trade-offs before choosing a policy that includes them.

Advantages

• Access funds during a crisis

  If you’re diagnosed with a serious illness, living benefits can provide access to a portion of your death benefit while you’re still alive. This can help cover medical bills, caregiving costs, or lost income.

• Peace of mind

  Knowing you have a financial cushion in case of a major health event can reduce stress for you and your family. You’re not just planning for “what if I die?,” you’re also preparing for “what if I get seriously sick?”

• Flexibility

  Living benefits can give you options. Whether you use them to stay financially afloat, pursue treatment, or simply maintain your quality of life, they can provide more control over your coverage when life takes an unexpected turn.

Drawbacks

• Cost of adding riders

  While some policies include living benefit riders at no extra cost, others may charge a fee. It’s important to understand how much the rider adds to your premium and whether the coverage justifies the added expense.

• Reduction in death benefit

  If you access your living benefits, the amount your beneficiaries receive when you pass away will be reduced. In a simple example, if you have a $500,000 policy and use $100,000 in benefits during your lifetime, only $400,000 would go to your heirs. (Note: The total amount that would go to your beneficiaries could be reduced for a few reasons; such as administrative fees, or if you had taken out loans or withdrawals against a permanent policy.)

• Policy complexity

  Riders can come with their own rules and eligibility requirements, which can make your policy harder to understand. It’s important to read the fine print and work with a provider that makes the process clear.

Who Should Consider a Policy with Living Benefits?

Life insurance with living benefits isn’t a good fit for everyone, but for some people, the added protection can offer meaningful financial security. Here are a few groups who may benefit most:

• Families with a history of critical illness

  If serious illnesses like cancer, heart disease, or stroke run in your family, a policy with living benefits could provide added peace of mind. ABRs can serve as a financial safety net in case you face a similar diagnosis in the future.

• Sole breadwinners

  If your household depends heavily on your income, an unexpected illness could disrupt your family’s financial stability. Living benefits can provide access to funds to help pay the bills while you’re unable to work.

• People with chronic needs

  If you anticipate needing help with daily living in the future due to a chronic illness, a chronic illness ABR may be a practical way to prepare without buying a separate policy.

• Comparison with standard life policies

  Traditional life insurance focuses solely on a payout after death. While that’s important, it doesn’t address what happens if you become seriously ill during your lifetime. A policy with living benefits adds flexibility that standard coverage may lack.

How to Choose the Best Life Insurance with Living Benefits

Not all life insurance policies offer living benefits, so it’s important to shop carefully if these features matter to you. Here are a few things to look for when comparing options:

• What to look for in a policy

  Start by considering your personal health history, financial responsibilities, and risk tolerance. If you’re concerned about covering medical bills, long-term care expenses, or loss of income due to illness, a policy with accelerated benefit riders may offer extra peace of mind. Be sure to review how much of the death benefit you can access and under what conditions.

• Rider availability

  Not all insurers offer the same types of living benefit riders. Some include them automatically, while others charge an additional fee. Look for policies that offer accelerated death benefits based on what’s important to you, or based on your family history.

• Company reputation

  Choose a life insurance provider with strong financial ratings and positive customer reviews. Living benefit riders often require medical review or claims processing, so working with a reliable company can make the experience less stressful during an already difficult time.

• Premium affordability

  Policies with added living benefits may cost more, especially if the riders are optional. Make sure the premiums fit comfortably within your budget, both now and in the long run. A policy is only valuable if you can keep it in force.

Ethos Life Insurance and Living Benefits

Ethos makes it easy to get life insurance with living benefits, helping you protect your loved ones while also planning for the unexpected during your lifetime.

Many policies available through Ethos include living benefits through accelerated benefit riders (ABRs), giving you access to part of your death benefit if you’re diagnosed with a qualifying critical, chronic, or terminal illness. However, availability varies by carrier and policy type, so it’s important to ask about availability if living benefits are important to you.

Ethos makes it easy to apply for coverage:

• Simplified application process

  Ethos offers a fast, fully online application process that takes just minutes to complete, with no lengthy paperwork or in-person meetings required.

• No medical exam option

  Most applicants can qualify without a medical exam. Just answer a few health questions to determine eligibility.

• Policy types offered with living benefit riders

  Ethos provides both term life and permanent life insurance options. Many of these include built-in or optional ABRs, so you can choose the coverage that fits your budget and health needs while still giving you access to funds if your health changes.

Living Benefits May be an Option

Life insurance with living benefits can offer financial support if you’re faced with a serious illness or long-term care needs. Whether you want added flexibility, protection for your family, or a safeguard against medical expenses, these policies offer options that traditional coverage may not. Just keep in mind that using your living benefits will reduce the death benefit left for your loved ones.

If you’re looking for life insurance that fits your budget and supports you through life’s uncertainties, Ethos makes it easy to apply online, often with no medical exam, just answer a few health questions. See your options in minutes and find the right policy for your needs.

FAQs on Life Insurance with Living Benefits

What conditions qualify for living benefits in life insurance?

Living benefits (also known as accelerated benefit riders) are typically triggered by specific medical events. These may include a terminal illness with limited life expectancy, a chronic illness that impairs daily living activities, or a critical illness such as cancer, heart attack, or stroke. The exact conditions covered depend on your insurance provider and policy.

Are living benefits available in employer-provided life insurance?

Some group life insurance policies offered through work may include basic living benefit riders, but coverage is usually limited. Additionally, group plans may not be portable, meaning you could lose the coverage if you change jobs. If living benefits are important to you, it may be worth exploring an individual policy with more comprehensive rider options.

Do living benefits affect the life insurance payout to my family?

Yes. Living benefits are a portion of your death benefit. If you access funds early through a qualifying rider, the total amount paid to your beneficiaries after your death will be reduced by the amount you used while alive.

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

It depends on the insurer and the type of policy. Some companies allow riders to be added later, while others require them to be selected at the time of purchase. If you already have a policy, check with your provider to see if adding an accelerated benefit rider is an option.

How are living benefit payouts taxed?

In most cases, living benefit payouts are not considered taxable income if they meet IRS criteria (such as being triggered by a qualifying terminal or chronic illness). However, there may be exceptions depending on your policy, state laws, or how the funds are used. A tax advisor can help clarify your specific situation.

Are living benefits worth the extra cost?

For many people, yes. Living benefits can offer peace of mind by providing financial flexibility during a serious health event. While they may slightly increase your premium, the potential access to funds in a time of crisis can make them a worthwhile addition. And, many companies offer living benefits for no additional premium cost.

Is there a waiting period before I can use living benefits?

Some policies may impose a waiting period before certain riders become available, especially with chronic or critical illness benefits. Others may allow access as soon as you’re diagnosed with a qualifying condition. Always review the terms of your rider for details on eligibility and timing.

Do all insurance companies offer living benefits?

No. Not all providers include living benefits with their life insurance products. If this feature is important to you, look for a company (like Ethos) that offers policies with living benefit riders built in or as optional add-ons.