What Is Life Insurance With Living Benefits?
What Are Life Insurance Living Benefits?
Life insurance living benefits are financial benefits that life insurance policyholders can access during their lifetime. The two main types are cash value and living benefit riders. Cash value accounts grow over time and can be accessed through withdrawals or secured loans. Living benefit riders are endorsements you can add to a life insurance policy for extra benefits. For example, a rider could allow you to access your death benefit if you become chronically ill or disabled.
Types of Life Insurance With Living Benefits
The living benefits available may vary depending on the type of life insurance policy you choose.
Term Life Insurance
Term life insurance policies offer coverage for a set amount of time, such as 10, 20, or 30 years. Once your term ends, your coverage ends—unless you renew the policy or convert it to a permanent option. Term life policies don’t come with a cash value savings component, but insurers often offer living benefit rider options.
Permanent Life Insurance
Permanent life insurance policies offer coverage for the rest of your life and guarantee a death benefit, as long as you keep paying your premiums. These policies also typically come with cash value savings components and a lineup of living benefit riders.
With cash value, insurers deposit a portion of your premium payments into an interest-bearing account. Once it reaches a certain balance or accumulates for a given number of years, you can use the cash value to pay your premiums. Insurers also often allow you to withdraw from or borrow against the cash value.
Types of Living Benefit Riders
Living benefit riders come in many forms. Here are some of the most common options. These are all considered accelerated death benefits.
Terminal Illness
A terminal illness rider allows you to withdraw some or all of your death benefit if you’re diagnosed with a terminal illness. To be eligible, insurers typically require that a medical professional estimates your remaining life expectancy under a certain amount of time, such as less than 24 months. Any amount you receive through the terminal illness rider will reduce the death benefit that your beneficiary receives.2
Chronic Illness
The chronic illness living benefit allows you to withdraw a portion of your death benefit if you’re diagnosed with a chronic illness. Insurers have guidelines defining when you can file a chronic illness claim. For example, many insurers require a healthcare professional to confirm you can’t perform two of the six activities of daily living, such as feeding yourself and bathing.
Critical Illness
The critical illness rider is similar to the chronic illness rider but applies to a specific list of illnesses and health conditions. Common critical illnesses include strokes, heart attacks, kidney failure, paralysis, and cancer. If you’re diagnosed with a critical illness and have this coverage, you can receive a portion of your death benefit. However, insurers may limit your claims. For example, Nationwide only allows you to make one claim per year, per qualifying health condition from the same event.
Long-Term Care
A long-term care rider allows you to use your policy’s death benefit to pay for long-term care expenses such as:
- Home health care services
- Fees to stay in an assisted living facility or nursing home
- Costs to pay friends or family members who provide you with care
To be eligible, a U.S. licensed healthcare practitioner must typically confirm that you’re in need of long-term care.
Disability Waiver of Premium Rider
If you become totally disabled, this rider waives your premiums. As a result, you can maintain life insurance coverage while disabled without the need to make any additional payments.
How Much Is Life Insurance With Living Benefits?
The cost of life insurance depends on a variety of factors ranging from your age and health to the insurer you choose. Adding most living benefits to your policy will increase your cost of coverage.
For example, if you want to add a disability waiver of premium rider to a policy, it increases your premium by about 10% to 25%. Permanent policies with cash-value living benefits cost much more than temporary term policies without cash value.
To find out the specific costs of a particular living benefit, request quotes from top-rated life insurance companies.
How to Get a Life Insurance Policy With Living Benefits
If you’re interested in a life insurance policy with living benefits, start by identifying which living benefits you want. Next, shop around with life insurers to find those that offer the living benefits and sound like a good fit overall. Then, collect quotes from a handful of insurers and compare the offers side by side.