Your Guide to Life Insurance with Living Benefits

Living benefits refer to additional features provided through optional riders that enable you to receive benefits from your life insurance policy while you’re still alive.

In general, the purpose of life insurance is to provide financial support to your beneficiaries after your death. However, with specific riders, your policy can also offer you financial assistance in various circumstances during your lifetime.

In this guide, we’ll explore which riders provide life insurance with living benefits and if the extra cost is worth it.

Table of Contents

• What Is Life Insurance With Living Benefits?
• Types of Living Benefits
• Pros and Cons of Living Benefits
• Is Life Insurance With Living Benefits Worth It?
• Living Benefits FAQs

What Is Life Insurance With Living Benefits?

There are many rider options when you buy a life insurance policy. As a policy owner, they provide benefits you can take advantage of while alive.

Facts about living benefit riders:

• Some riders are included in your policy at no extra cost, while others may require an additional fee.
• Some riders can be added to your policy at any time. Some need to be added at the time of purchase.
• Rider availability can vary based on the type of life insurance policy you’re buying.
• Not all riders are available from all insurance companies, and availability may vary by state.
• Sometimes the risk class you’re assigned can impact rider availability.
• Living benefit riders can either offer accelerated benefits, meaning the living benefits you use ultimately reduce the death benefit, or additional benefits, meaning the living benefits don’t reduce the proceeds your beneficiaries will receive.

What Policies Can I Get Living Benefits On?

The most common types of life insurance with living benefits:

• Term life insurance
• Whole life insurance
• Universal life insurance
• Indexed universal life insurance
• Variable universal life insurance
• Guaranteed universal life insurance

Learn about the different types of life insurance policies in our guide.

Types of Living Benefits

Life insurance riders are additional provisions that can be added to a basic life insurance policy to enhance coverage or provide extra benefits. Let’s explore the most common riders that offer living benefits.

Accelerated Death Benefit Rider

An accelerated death benefit (ADB) is a feature available in most life insurance policies, allowing you, the policy owner, to access a portion of the death benefit in advance if you’re diagnosed with a terminal illness. You can use these funds however you wish.

• Availability: ADB is common in both term and permanent life insurance policies.
• Cost: This rider is typically free and often automatically included in your policy.
• Impact on death benefit: The amount accessed through the ADB is deducted from the death benefit, which means your beneficiaries will receive a reduced amount upon your death.

Chronic Illness Rider

A chronic illness rider allows you, the policy owner, access to a portion of the death benefit if you’re unable to perform a certain number of activities of daily living (ADLs) due to a chronic illness. You’ll need a doctor’s confirmation that your condition is permanent to qualify for benefits.

• Availability: Available on many life insurance policies, but eligibility criteria might apply.
• Cost: This rider typically requires an additional premium, often based on policy size and your health.
• Impact on death benefit: Any amount accessed through the rider is deducted from the death benefit, which means your beneficiaries will receive a reduced amount upon your death.

Critical Illness Rider

A critical illness rider allows you, the policy owner, access to a portion of the death benefit if you’re diagnosed with a critical illness such as cancer, heart attack, or stroke.

• Availability: Available on many life insurance policies, but eligibility criteria might apply.
• Cost: This rider typically requires an additional premium, often based on policy size, age, and health.
• Impact on death benefit: Any amount accessed through the rider is deducted from the death benefit, which means your beneficiaries will receive a reduced amount upon your death.

Long-Term Care Rider

A long-term care rider allows you, the policy owner, access to a portion of the death benefit to pay for your long-term care if you cannot perform 2 out of 6 activities of daily living (ADLs) for at least 90 days. Your condition doesn’t need to be permanent.

• Availability: Only available on permanent life insurance policies.
• Cost: This rider requires an additional premium, which can be substantial.
• Impact on death benefit: Any amount accessed through the rider is deducted from the death benefit, which means your beneficiaries will receive a reduced amount upon your death.

Disability Income Rider

A disability income rider provides a supplementary monthly income if you become disabled and are unable to work.

• Availability: Less widely available.
• Cost: This rider requires an additional premium based on your occupation and other factors.
• Impact on death benefit: Benefits provided do not impact the death benefit. It’s a separate income stream.

Waiver of Premium Riders

A waiver of premium rider ensures that you don’t have to pay premiums to keep your life insurance policy active if a certain event occurs.

There are two premium waiver riders:

1. Unemployment Protection Rider
   • Function: If you become involuntarily unemployed, this rider waives your premium payments for a specific period. Waived premiums do not need to be paid back.
   • Availability: Less widely available.
   • Cost: This rider typically requires an additional premium, often based on policy size, age, and health.
   • Impact on death benefit: Waived premiums do not impact the death benefit. The full death benefit will still be paid to the designated beneficiaries if death occurs.
2. Premium Waiver for Disability Rider
   • Function: If you become disabled, this rider waives your premium payments for a specific period. Waived premiums do not need to be paid back.
   • Availability: Available on many life insurance policies, but eligibility criteria might apply.
   • Cost: This rider typically requires an additional premium, often based on policy size, age, and health.
   • Impact on death benefit: Waived premiums do not impact the death benefit. The full death benefit will still be paid to the designated beneficiaries if death occurs.

Return of Premium Rider

The most common use of a return of premium (ROP) rider is on a term policy. An ROP term rider makes you eligible for a refund of your premiums if you outlive your term life insurance policy.

ROP riders are also sometimes available on permanent life insurance products. In this case, the ROP rider allows you to surrender your policy and recoup some or all of the paid premiums.

• Availability: Less widely available.
• Cost: This rider requires an additional premium, which can be substantial.
• Impact on death benefit: If used, your policy is either expired or terminated, so no death benefit is in play.

When considering living benefits, it’s important to remember that not all insurance companies offer the same riders, and availability may vary based on location and other factors.

Pros and Cons of Living Benefits Life Insurance

In general, for a fee, these riders provide benefits to you while you’re alive should a specific event occur. Each rider has its pros and cons.

Accelerated Death Benefit Rider

Pros:

• Provides financial relief when facing a terminal illness.
• Gives you flexibility in using funds.
• Usually free to add onto your policy.
• Commonly available across a range of insurers and products.

Cons:

• If used, reduces the death benefit available to beneficiaries.
• Might have tax implications.
• Often a processing fee if you choose to use benefits.

Chronic Illness Rider

Pros:

• Provides a lump sum that can be used for medical expenses or lost income while you’re alive.
• Helps alleviate financial burdens on your family.
• Commonly available across a range of insurers and products.

Cons:

• If used, reduces the death benefit available to beneficiaries.
• Health conditions must be diagnosed as permanent to qualify for benefits.
• Extra fee on top of policy’s base premium.

Critical Illness Rider

Pros:

• Provides a lump sum that can be used for medical expenses or lost income while you’re alive.
• Helps alleviate financial stress during a health crisis.
• Health condition doesn’t need to be permanent to qualify.
• Commonly available across a range of insurers and products.

Cons:

• If used, reduces the death benefit available to beneficiaries.
• Extra fee on top of policy’s base premium.
• Specific conditions must be met for living benefit payout.

Long-Term Care Rider

Pros:

• Provides funds to use for long-term care expenses.
• Can help protect retirement savings.
• Typically cheaper than a long-term care life insurance policy.

Cons:

• If used, reduces the death benefit available to beneficiaries.
• Hefty fee on top of policy’s base premium.
• Specific conditions must be met for living benefit payout.
• Limited availability.

Disability Income Rider

Pros:

• Provides a steady income during disability.
• Does not reduce death benefit.

Cons:

• Extra fee on top of policy’s base premium.
• May have limitations on how long it will pay out.
• Limited availability.

Premium Waiver for Disability Rider

Pros:

• Keeps your life insurance policy active without payment requirements while you’re disabled and can’t work.
• Helps alleviate financial stress.
• Does not reduce death benefit.
• Commonly available across a range of insurers and products.

Cons:

• Extra fee on top of policy’s base premium.
• Strict definition of disability must be met for benefits.

Unemployment Protection Rider

Pros:

• Keeps your life insurance policy active without payment requirements if you lose your job.
• Helps alleviate financial stress.
• Does not reduce death benefit.

Cons:

• Extra fee on top of policy’s base premium.
• Waiting periods must be met before benefits are paid.
• Limited availability.

Return of Premium Rider

Pros:

• Provides a refund if life insurance death benefit is never used, either by outliving the term or surrendering a permanent policy.

Cons:

• Adding rider increases premiums; the money used to pay the higher premiums could be used elsewhere for better investment returns.

Is Life Insurance with Living Benefits Worth It?

Including a rider with living benefits in your insurance policy can be worth it for some. Still, it depends on your circumstances, such as financial goals, budget constraints, and specific insurance needs.

Some things to consider:

• Family history: If you have a family history of chronic illnesses, such as heart disease or Alzheimer’s, for example, a Critical Illness Rider or Long-Term Care Rider might be a sensible choice.
• Family circumstances: If you’re the sole breadwinner for your family, a Disability Income Rider and Waiver of Premium for Disability Rider can be crucial.
• Financial situation: Evaluate your financial situation. If an illness or disability would put a significant financial strain on you or your family, having a rider that alleviates this burden may be worth the additional cost.
• Cost of the rider: Assess the additional cost of the rider relative to the benefit it provides. In some cases, the price might be relatively low compared to the peace of mind and financial protection it offers. In other cases, the cost might not justify the potential benefit.
• Alternative options: Consider if other financial products might better suit your needs. For example, instead of a Return of Premium rider, how much could you earn investing the difference?
• Peace of mind: Sometimes, the decision is financial and emotional. Knowing that you have protection in place in case of illness or disability might provide peace of mind for you and your family.

Living Benefits FAQs

Here we clarify some additional questions we often hear to help you make informed decisions about including living benefits riders in your life insurance policy.

Can I Use Living Benefits for Non-Medical Expenses?

Most living benefits riders allow you to use the benefit funds in any way you see fit.

However, it’s important to note that some long-term care riders offer reimbursement rather than indemnity benefits.

With reimbursement benefits, you must submit receipts and documentation of your expenses to the insurance company, which will reimburse you for those costs.

This contrasts with indemnity benefits, where you receive a lump sum that you can use for any purpose.

Does Accessing Living Benefits Reduce the Death Benefit?

Living benefit riders that advance a portion of the death benefit, e.g., accelerated death benefits, chronic illness, critical illness, and long-term care riders, will result in a reduced death benefit for your beneficiary.

Living benefit riders that provide a stream of income during times of need or waive payments do not impact the death benefit.

How Much of the Death Benefit Can I Access with Living Benefits?

The death benefit amount you can access through living benefits varies depending on the insurance company and their specific policies.

Some insurers may allow you to access the full death benefit, while others might cap the amount you can accelerate to a certain percentage, like 75% or 50%.

Is the Cost of Living Benefits Included in the Premium?

The accelerated death benefit rider is usually included with your policy at no additional cost. However, there is an extra fee for most other living benefits riders.

When you add one of these riders, the additional cost is built into your overall premium, meaning it’s part of the single payment you make for your policy rather than requiring a separate transaction.

Additionally, it’s worth noting that some living benefits riders may be temporary, and some you may have the option to cancel if you no longer need or want them.

In these cases, the extra fee associated with the rider would be removed from your premium, resulting in a lower overall payment for your policy.

Did you know you can further customize your life insurance policy with various other riders? Learn more about your options for riders in insurance. 

Get a Life Insurance Policy With Living Benefits Through Quotacy

Your life insurance needs are unique to you and your family. That’s why Quotacy offers a wide range of options and a personalized touch to ensure that your policy perfectly aligns with your values and goals.

Don’t wait until it’s too late to secure peace of mind for you and your loved ones. Start by getting a free life insurance quote today. Our streamlined online process helps you compare and customize policies effortlessly.

When you apply online, you’re assigned a dedicated agent to help answer any questions and guide you through the buying process.

We’re here to help you make informed decisions and simplify your journey in securing your family’s future. Take the first step today. Quotacy is here to help and make things easier.