Living Benefits: Life Insurance's Best-Kept Secret

Life insurance is typically purchased to provide financial protection for loved ones after the policyholder's death. However, some policies offer benefits while the policyholder is still alive, known as living benefits. Living benefits provide financial assistance to the policyholder during their lifetime, helping them prepare for the future and enhancing their financial security and flexibility. These benefits can be accessed in the event of specific challenges, such as a serious illness or disability, and can be used to cover medical expenses, supplement lost income, or pay for large expenses. Living benefits are available with both term and permanent life insurance policies, but the specific benefits offered and the terms and conditions may vary. It is important for individuals to understand the eligibility requirements and potential costs associated with these benefits to make informed decisions about their financial planning.

Permanent life insurance

The cash value component of permanent life insurance allows policyholders to build wealth over time. A portion of the premium payments made by the policyholder is deposited into an interest-bearing account, allowing the cash value to grow tax-deferred. This cash value can then be accessed by the policyholder in several ways, such as withdrawing cash, taking out loans, or surrendering the policy. However, it is important to note that accessing the cash value may result in a reduction in the policy's death benefit.

Overall, permanent life insurance provides living benefits in the form of cash value accumulation and optional riders, offering policyholders financial flexibility and peace of mind during their lifetime.

Term life insurance

Living benefit riders for term life insurance policies can include the return of premium riders, which refund some or all of the premiums paid if the policy term is outlived. Another example is the waiver of premium riders, which allows policyholders to stop paying premiums if they become disabled and can no longer work. Additionally, accelerated death benefit riders allow policyholders to access a portion of their death benefit while alive if they are diagnosed with a serious, chronic, or terminal illness. This money can be used to cover medical expenses or other financial needs.

It is important to note that adding living benefits to a term life insurance policy will increase the cost of coverage. The additional cost can vary depending on the specific living benefit rider chosen. Policyholders should carefully review the terms and conditions of their policy, including any waiting periods or eligibility requirements for accessing living benefits.

Accelerated death benefit riders

An accelerated death benefit (ADB) rider is a feature of a life insurance policy that allows you to access a portion of your life insurance policy's payout early if you become terminally ill, critically ill, or chronically ill. This feature is designed to help cover medical bills, care costs, or other expenses while you are still alive. The amount of money that can be withdrawn varies by insurer, but it is typically up to 50% of the death benefit or a maximum dollar amount.

ADB riders are typically included in life insurance policies at no extra cost, but some companies may charge a one-time processing fee to activate the rider. It's important to note that withdrawing from your death benefit early will generally reduce the amount of money your beneficiaries will receive when you pass away.

The eligibility rules for ADB riders vary among insurers, but most require certification from a doctor or medical professional stating that the policyholder is terminally ill with a life expectancy of 12 to 24 months or less. Some insurers also offer ADB riders for critical or chronic illnesses that may shorten life expectancy.

ADB riders provide several benefits to policyholders. They can help ease financial stress during a difficult time by providing funds to cover medical bills or other expenses. They also offer flexibility, as the money received through the rider can generally be spent however the policyholder chooses. Additionally, the payments from ADB riders are typically tax-free, although there may be exceptions if the payments are received in installments and accrue interest.

Overall, ADB riders can provide valuable financial support and peace of mind to individuals facing serious illnesses. By allowing early access to a portion of their life insurance policy's payout, ADB riders can help ease the financial burden associated with medical care and other expenses during a challenging time.

Critical illness riders

A critical illness rider is an optional add-on to a life insurance policy that allows you to access your death benefit while you are still alive if you are diagnosed with a qualifying critical illness. Critical illnesses typically include specified illnesses and health conditions, such as heart attacks, strokes, and cancer. The exact illnesses covered depend on the insurance company and the policy.

To activate a critical illness rider, you will typically need to provide proof from your doctor that you have developed a qualifying critical illness. Once activated, you will receive a payout from your insurance company, usually as a lump sum, which can be used for anything. The payout will come from your death benefit, so the amount available to your beneficiaries after your death will be reduced.

Chronic illness riders

It is important to note that the availability and specifics of chronic illness riders may vary depending on the insurance company and the specific policy. Each insurance company will have its own definition of what constitutes a "chronic illness" and may have different requirements for qualifying for the rider benefits. Additionally, the amount that can be withdrawn and how it can be used may also vary.

When considering a chronic illness rider, it is essential to carefully review the terms and conditions to understand the specific coverage provided. It is also important to keep in mind that any amount withdrawn through the rider will typically reduce the death benefit that the beneficiary will receive.

Frequently asked questions