Life Insurance With Living Benefits

What Is Life Insurance With Living Benefits?

Life insurance with living benefits allows you to access a portion of your policy’s death benefit if you’re diagnosed with a qualifying illness or condition. These can be helpful to cover medical bills, caregiving needs, or everyday expenses during a serious health event, providing peace of mind when it matters most.

‘Living benefits’ most commonly refer to accelerated death benefit riders triggered by qualifying illness. Accessing cash value is a separate feature of permanent life insurance and is not considered a living benefit ‘rider’, but it’s still helpful if your policy doesn’t include a rider and you need financial support during your lifetime.\ \ Note: Coverage and eligibility vary by insurer, as not all life insurance policies include living benefit riders, and term policies don’t include a cash value component.

How Life Insurance With Living Benefits Works

Life insurance with living benefits lets you access a part of your death benefit payout during your lifetime, typically with both term and permanent life policies. Here’s how these work:

Accessing Living Benefits With Riders

• When you buy a life insurance policy, you may add a rider that fits your life situation and may help cover potential risks. Some policies may also include built-in riders.
• If, unfortunately, you’re diagnosed with a serious qualifying health condition, you become eligible to use the benefit, meaning a portion of your death benefit.
• For verification, insurers often ask for medical documents to confirm the diagnosis.
• After confirmation, you can choose how much benefit you want to access, up to the policy’s allowed limit.
• On approval from the insurer, you receive the payout that can be used to pay for medical bills, income replacement, or everyday expenses.
• Any amount you use through the living benefit is deducted from the death benefit that your beneficiaries would later receive.

In general, these benefits are triggered when you’re diagnosed with a qualifying health condition. Some common triggers include:

• In case of critical illness like a heart attack, stroke, or certain cancers
• In case of chronic illness that may impact your ability to be active in your daily life and you need assistance 
• In case of terminal illness that may limit your life expectancy 

Remember, the qualifying conditions may vary across insurers, policy types, and riders.

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 (ABRs), 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.

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. Insurers often verify medical records stringently to confirm the diagnosis.

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.

Long-Term Care Rider

This rider can be helpful if you’re ever diagnosed with a qualifying chronic condition, as defined in the policy.  It may offer funds for long-term care needs or assistance with performing at least two of six day-to-day activities, including bathing, dressing, and eating, among others.  You can use a portion of the policy's payout to fund costs around nursing home stays or in-home care. 

Types of Life Insurance That Offer Living Benefits

Not all life insurance policies include living benefits, but many term and permanent policies now offer ABRs as a standard feature or optional add-on. Here’s how living benefits are included 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.

Whole Life & Permanent Life Insurance with Living Benefits

Whole life insurance and other permanent life insurance can include life insurance coverage 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. 

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.

Using Cash Value on Whole Life or Other Permanent Life Insurance

If you have a permanent life insurance policy, like a whole life or universal life insurance, its cash value component can be helpful during your lifetime. Cash value access is not specifically illness-triggered, but they can still be used while alive. Here’s how this works:

• When you pay premiums for your permanent coverage, a part of it is utilized for maintaining the cost of coverage, while the remaining portion goes for the cash value growth. 
• As you keep paying the premiums, the cash value keeps growing through guaranteed interest, market-linked crediting, or investment-like subaccounts, based on the policy type. 
• The cash value accumulation works like a savings account. Once you accumulate a substantial value, you can use the cash value to withdraw funds or borrow a loan. 

But remember, accessing the cash value can reduce the death benefit for your beneficiaries. In some cases, your policy can also lapse if you take out too much and there’s not enough to keep the base coverage active or when the loan is not repaid.

Accessing more value than what you’ve put in premiums may also trigger a tax liability. Some people also surrender the permanent policy while alive to access the cash surrender value (cash value minus surrender charges), but your coverage may immediately end, so it is suitable only if you no longer need the protection.

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.

Pros:

• 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.

Cons:

• 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 Buy Life Insurance 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.

When Living Benefits May Not Be Worth It

Using living benefits on your life insurance may be helpful, but sometimes it might not make sense, especially when your beneficiaries majorly rely on your death benefit. Here are some situations when living benefits may not be too helpful:

• You already have solid savings or emergency funds to cover unexpected expenses.
• You have reliable health insurance, disability insurance, or a long-term care policy.
• You don’t want to pay a higher premium that adding riders may add to the original costs
• Your coverage has just begun, and the policy has not built enough cash value.

Read: Using Life Insurance While You’re Alive

How Much Can You Access With Living Benefits?

You can typically access a portion of your death benefit while alive, but the amount you can access depends on your policy type, rider, and the qualifying health condition. If you’re accessing the benefit through accelerated death benefit riders, some typical ranges include:

• Often between 25% and 100% in case of terminal illness or critical illness¹
• Often 1%-4% of the death benefit per month for chronic illness²

If you’re using the policy’s cash value while alive, here are the general limitations:

• Often up to 90% of the available cash value as a policy loan³
• Withdrawals are subject to available cash value, but withdrawing more than the premium you’ve paid may imply taxes.

Remember, using the death benefit while alive reduces the payout for the beneficiaries, as whatever you take out is reduced from the overall death benefit.

*Note: These are general ranges; the actual value may reduce due to fees, interest charges, rider terms, age, payment method, or other terms based on the policy terms.*

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.

• 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.