Posted on Sep 29th, 2022

"When people buy life insurance, they generally focus on the death benefits that go to their loved ones. But did you know that some life insurance policies offer “living benefits” that you can tap into while you are alive? These benefits increase the value of your policy by allowing you to access your death benefit in certain situations. In this article, we’ll define what life insurance with living benefits is, how you can use them and why they’re a valuable addition to your life insurance policy. Consider working with a financial advisor as you assess your life insurance needs.

What Is Life Insurance With Living Benefits?

Life insurance is intended to provide financial support for the beneficiaries of someone who passes away. Most people assume that this financial support only happens after death, but some policies provide living benefits.

Living benefits are also known as accelerated death benefits. They are riders attached to a life insurance policy that allows the insured to access a portion of the death benefit while they’re still alive. In most cases, the money withdrawn through living benefits reduces the death benefit available to your beneficiaries upon your death.

Depending upon the insurer and the structure of your life insurance policy, the cost for the living benefits varies. They may be included at no extra charge or you may have to pay an additional fee on top of your monthly or annual premium in order to receive those benefits.

How Can You Use Living Benefits From Life Insurance?

Life insurance with living benefits can provide support to policyholders in many ways. These are a few of the most common living benefit options available from insurance companies:

Terminal illness. Diagnosed with a terminal illness with a life expectancy of less than 6 to 12 months. Benefits can be used to pay for experimental medicine not covered by insurance, burial expenses or anything else you feel is necessary.
Chronic illness. When you are diagnosed with a chronic illness that prevents you from performing two of the six basic activities on your own. Known as activities of daily living, they are bathing, dressing, eating, continence, toileting, transferring or due to cognitive impairment.
Critical illness. An illness that has a substantial impact on your well-being, but does not necessarily lead to death. Illnesses include cancer, heart attack, stroke, blindness due to diabetes or kidney failure. Benefits are usually in the form of a lump sum benefit.
Long-term disability. The inability to perform your job (or any job, depending on the policy terms) to earn an income. This benefit helps to replace your lost income while you cannot work.
Long-term care. Pays for some or all of the costs of long-term care that your health insurance doesn’t cover. Depending on your policy terms, it could cover in-home care as well as nursing home facilities.

Limitations of Life Insurance With Living Benefits

In order to receive money from your life insurance with living benefits, your claim must be approved by your life insurance company. Each company approaches claims differently and has different qualifications as to who is eligible to receive benefits. In general, here are some of the limitations that you may face when submitting a claim:

Eligibility. In order to receive living benefits, your insurance company must approve your claim according to eligibility requirements based on the type of disease that you have and your projected life expectancy.
Claim limits. Insurance companies may limit the amount you can withdraw from your policy as a percentage of your death benefit or a set dollar amount.
Reduction in death benefit. Any amount that you receive from your living benefits may reduce the amount that your beneficiaries will receive.
Fees for the claim. Some insurance companies will charge a fee on top of your withdrawal amount. This will further reduce the amount leftover from your death benefit for your beneficiaries.

Is a Life Insurance Policy With Living Benefits a Good Idea?

There’s no right or wrong answer to this question. Accessing your living benefits can help to ease the financial strain when you are sick or disabled. This money may even pay for experimental treatment or other care that could prolong or enhance your life. Many people would agree that this is money well spent.

However, when you submit a claim, the payouts may reduce the amount of money that you had intended for your beneficiaries. Depending on your personal financial situation, this could lead to tough financial choices for your loved ones after you pass away.

The Bottom Line

Life insurance with living benefits gives you the option to access your death benefit while you’re still alive. There are rules to determine your eligibility and limits on how much you may receive. Each insurance company has its own coverage options, rules and limits, so it pays to review policies carefully before buying life insurance. Having a life insurance professional by your side can help you review how much you need and select the policy that addresses your major concerns.

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