What is life insurance with living benefits?
Living benefits of life insurance allow you to access money from your policy while you’re still alive in certain situations. Yet living benefits aren’t as well-known as life insurance’s more commonly understood death benefits. For many people, the primary purpose of life insurance is to financially support beneficiaries if they pass away.
However, if you purchase life insurance with living benefits, you can tap into some of the money during your lifetime to help provide financial support.
How can you use living benefits?
You can use the living benefits of life insurance in certain situations, including:
- You’ve been diagnosed with a terminal illness: If you’re facing a terminal diagnosis, you can access the funds from living benefits to cover end-of-life care. This money could help you and your loved ones pay for medical expenses, debt, or a memorable family vacation together. Each life insurance company has life expectancy timelines that limit when you can access the cash, typically ranging between six and 24 months. Check with your life insurance provider when you purchase this type of coverage to confirm the specifics of your policy.
- You’ve been diagnosed with a chronic illness: You can use living benefits for treatment and care if diagnosed with a chronic ailment or disability. Many insurers allow you to access funds if your condition prevents you from performing at least two of the six activities of daily living — eating, bathing, using the toilet, walking, dressing, and getting in or out of bed.
- You need to cover debts: Some living benefits, like the cash value of a permanent life insurance policy, allow you to tap into your policy to cover many types of expenses. These can include paying off a mortgage, debt consolidation, or funding a college education.
It’s important to note that when you access living benefits, you may be charged interest on the money you remove, which is part of your policy’s death benefit. So, unless you pay back the loan, your beneficiaries will likely receive less money after your pass.
Living benefits of term life insurance
A life insurance policy covering you for a fixed length of time, often 10 to 30 years, is term life insurance. Term life living benefits can include:
Terminal illness rider
A terminal illness rider, also known as an accelerated death benefit or living benefits rider, lets you access a percentage of your life insurance policy’s death benefit to cover the cost of treatment and other expenses if you are diagnosed with an incurable illness and your recovery is unlikely.
This living benefits rider is sometimes included in a standard life insurance policy which won’t increase your premiums.
If the living benefits rider isn’t already included, you can typically add it to a new or existing policy for an extra charge.
As you review life insurance options, it’s important not to confuse terminal illness riders with critical or chronic illness riders, which are designed for serious but curable conditions.
Chronic illness rider
A chronic illness rider can help pay for long-term care and other costs associated with a serious but curable condition. As with a terminal illness rider, you’ll need to have the rider in place before you’re diagnosed to use the living benefits.
Return of premium insurance rider
A return of premium rider is exactly what it sounds like: if your life insurance term ends while you’re still alive, you get back some or all of the premiums you’ve paid over the years. For instance, if you paid $30 a month for 15 years and purchased a return of premium rider, you could get back around $5,400 at the end of the term, tax-free.
You’ll pay extra to add a return of premium rider, but when you’re reimbursed for your payments at the end of the policy’s term, it also includes the cost of the rider. All reimbursement is tax-free since it is considered a refund instead of a payment. If you pass away before the policy expires, your loved ones will still have access to the death benefits.
Living benefits of permanent life insurance
A permanent life insurance policy offers lifelong coverage as long as premiums are paid. You can add any of the above riders to a permanent life insurance policy. Plus permanent life insurance comes with other living benefits, like the ability to accrue cash value.
Cash value
A unique advantage of a permanent life insurance policy is your ability to build tax-deferred cash value over time. When you pay premiums, a portion of the payment goes toward the death benefit for loved ones after you pass, while the other portion goes into a cash value account. Then, you can withdraw money from the cash value while still alive to cover expenses, such as a child’s higher education, the purchase of a house, or retirement.
The withdrawals are not taxable as long as the amount is less than or equal to what you’ve already paid in policy premiums. You can also take out a loan against this cash value, and even though you will be charged interest, you won’t have to go through a credit check to qualify. However, the insurer may deduct any amount you withdraw from your policy’s cash value from the death benefits if it is not repaid.
How much does life insurance with living benefits cost?
Certain companies may have living benefits as part of their standard policies. If it is an optional add-on, the cost of a living benefits rider will vary from one provider to another. The riders, the amount of coverage you choose, and the policy term will affect your life insurance policy premiums. To understand how much life insurance with living benefits costs, it’s best to contact a licensed insurance agent.
Discover life insurance with living benefits today
Having life insurance with living benefits brings many advantages, including the ability to customize your policy to suit your needs. Not sure which rider is the best for you? Get in touch with eFinancial’s team of life insurance agents to learn more about the range of living benefit riders and start building your life insurance policy today.