Living Benefits

Usually a life insurance policy is established to benefit those left behind after the policyholder dies. In fact, some life insurance policies offer benefits to the policyholder while they are still living. Living benefits are features which can be purchased as add-ons to provide access to the death benefit before death. These benefits, or riders, allow the death benefit to cover high end-of-life medical costs like hospice or nursing home care for individuals with qualifying medical conditions. This is commonly referred to as a living benefit rider or accelerated death benefit rider.

Keep in mind that accessing these funds reduces the final payout which your policy was intended to provide. Many find it comforting to be able to access these funds before death since their expenses will have to be paid one way or another. If you are able to prove your illness is severe, you may be able to withdraw up to 80% of your death benefit to cover medical expenses. Let’s look at a few common living benefit riders.

Terminal Illness Rider

To qualify, you will need a proven medical diagnosis with a life expectancy of up to two years. The timeline requirements vary by insurance issuer. This rider is included in many life insurance policies.

Chronic Illness Rider

This will allow you to access your death benefit with a diagnosis of a chronic illness which interferes with your daily activities. The six recognized activities of the daily living (referred to as ADL) are eating, bathing, getting dressed, transferring, toileting, and continence. If your chronic illness prevents you from doing any two or more from this list, you may access your death benefit.

Critical Illness Rider

If diagnosed with a critical illness which greatly reduces life expectancy and requires high cost medical treatment, this rider allows access to your benefits. This would include coverage for life threateneing cancer, stroke, kidney failure, ALS, or heart attack.

Long Term Care Rider

This rider offers disbursement of part of the death benefit when two or more of the six ADL are no longer possible. Payouts go toward long term care expenses exclusively. Sometimes this is called hybrid long term care insurance.

There are restrictions to benefit access included with each of these riders. Funds can only be withdrawn on an as-needed basis. Keep in mind that with permanent whole life insurance, you may be able to access the cash value portion of your benefit while you are still alive. Funds can be withdrawn or used to borrow against, purchase additional benefits, or transferred to cover the cost of your monthly premiums. These are all considered living benefits. For many individuals, the cost of additional insurance benefits is well worth the ability to maximize coverage and protect their loved ones from overwhelming end-of-life expenses.

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