Definition of Living Benefits and Policies that Provide Them Although life insurance can provide for loved ones after your death, there are times when it is preferable to use the money from a policy before passing away. For instance, if you and your family are facing significant end-of-life expenses, you might prefer to have cash on hand to cover medical expenses and arrange your affairs. Some life insurance policies offer "living benefits" that let you access money while you're still alive. Living benefits provide flexibility, but it's important to pick policy features carefully because it's easy to anticipate too much from your life insurance policy. Consequently, you might receive coverage that is insufficient for your needs. We'll go over how living benefits operate and when they're most useful.
Main Points
- While some policies provide benefits while you're still alive, life insurance payouts generally occur after death.
- Medical expenses, long-term care, and other needs can be covered financially by living benefits.
- Some insurance policies come with living benefits for no additional cost, while other policies might ask you to add them for a fee.
- The amount your beneficiaries ultimately receive will be less if the death benefit is accelerated.
- To learn about the choices available and the criteria for benefit claims, carefully review the policies.
What Do Life Insurance Living Benefits Entail?
These are provisions in your life insurance policy that you can use while you're still alive. Most people buy life insurance to give their beneficiaries the desperately needed money, but some policies have provisions that pay out benefits even before the insured person passes away.Examples of Benefits for Daily Living
Some of the most popular living benefits that life insurance companies offer are listed below. But if you want to know what's available, speak with your insurance provider as they may have innovative ideas for benefits or use a different language. It's significant to remember that many benefits, also known as "riders," are frequently only able to be added at the time the policy is issued and not afterward. A living benefit is one that the policy owner can access before death, whereas a death benefit is a lump sum of money that beneficiaries receive.Accelerated Death Benefit (ADB)
If you meet certain requirements, an accelerated death benefit (ADB) feature lets you take an advance on the death benefit. For instance, you might be able to get money by "accelerating" the death benefit before you pass away if you're told you have a terminal illness, need long-term care, or have a chronic or serious illness. Typically, using an ADB lowers the final death benefit that is paid to beneficiaries. Your loved ones may receive less money as a result, but they might be content to see that money used to provide for your care and comfort in your final days. Finding a policy with an ADB is fairly simple if you're preparing for potential health problems. The feature is typical of permanent life insurance plans and is becoming more prevalent with term insurance. Even your workplace insurance may include this benefit. However, not every ADB is created equal. For instance, one company's ADB might pay out in the event of a terminal diagnosis. In contrast, other companies might only pay out in the case of chronic, critical, and terminal illnesses. Compare the ADBs that various companies offer and their associated costs if this feature is significant to you. Advice: Your policy must be in effect in order to use an ADB. Remember this when making future plans because term policies or coverage through your job could expire before you become eligible for benefits or require care (often at a later age).Obtaining Cash Value
The cash value of permanent life insurance policies, also known as cash value life insurance, can frequently be accessed. You are permitted to take money out of your policy, borrow money, and then return the borrowed money to restore the cash value. The money may be made available without paying taxes immediately if you borrow against the insurance policy. Two popular permanent insurance options with the potential to accrue cash values are universal and whole life. Permanent policies, however, frequently have surrender periods during which you may be required to pay a surrender fee in order to withdraw money. Additionally, the death benefit is reduced by any unpaid loan balances that are still due at death, which reduces the amount that the beneficiaries receive. The policy might run out of money, which is a disadvantage for both withdrawals and loans. This might occur if policy fees and interest charges deplete the remaining cash value. If the policy runs out of funds, you risk losing coverage, and you might be responsible for paying taxes on withdrawals that were higher than the premiums you paid. Note: There is no money available with term life insurance because it lacks a cash value.Premium Exemption
Life insurance premiums might be expensive if you become disabled and lose your job. However, you can maintain coverage—without paying premiums— using a waiver of the premium feature. Additionally, any cash value accumulation may continue unabated. Everyone runs the risk of becoming disabled, but both term and permanent insurance policies allow for waivers. This choice can lower your risk of losing coverage and is typically affordable. Remember that this is only a means of maintaining your life insurance during periods of disability; it is not disability insurance. The specifics differ from policy to policy, and there may be other circumstances in which premiums can be waived as well. To find out how this feature might impact your coverage and how much it will cost, speak with your insurer.Refund of the premium
With term life insurance policies, you receive temporary coverage for a predetermined number of years. Policies are reasonably priced, and protection is provided up until the end of the term or when premium payments are stopped. However, some people think that paying the premiums is a waste of money and prefer the thought of receiving their money back at the end of the term. Only term life insurance policies offer return of premium (ROP) options. You get your money back if you pay premiums for the duration of the policy and do not pass away. Your beneficiaries receive the death benefit, which is frequently sizeable if you pass away while the policy is in effect. Although you're taking less risk, ROP policies are more expensive than regular term life insurance. However, if you stop making premium payments early, you might lose the ability to get your money back. In order to use this feature, you must be able to pay the premium for the duration of the policy. Tip: The higher premiums for an ROP policy may deplete vital funds from your monthly spending plan. Think about paying less for a standard policy and putting the extra money in savings or investments.How Can I Receive Living Benefits?
If purchasing a policy with living benefits appeals to you, get in touch with an insurance provider or agent. Every insurer is unique, and in some cases, you can pay an additional fee to add these benefits as optional riders. For instance, you might need to pay extra to add an ROP rider to your term life insurance policy. The ability to withdraw money and take out loans from your policy is typically the default with permanent life insurance policies. Important: As you shop for insurance, examine every rider that is offered. Before receiving your policy, you might have to ask for living benefits and other features. Perhaps it won't be possible to add riders later.Is the price paid worth it?
Consider your living expenses carefully before deciding whether they are worthwhile. After carefully weighing the pros and cons with an insurance expert and reviewing your finances, you can decide. For instance, the waiver of premium riders is frequently affordable, and it is generally recommended to include this choice whenever it is possible. ROP riders, however, can substantially raise the cost of insurance, which may make it difficult to afford adequate insurance.You May Be Eligible for Benefits.
To understand how your insurance policy operates, carefully read your insurance contract. You frequently need to fulfill certain requirements, so simply adding a rider isn't a guarantee that you'll receive benefits. The death benefit, for instance, might only be partially paid by an ADB, leaving you with less money than you require for end-of-life care. Additionally, you might need to have insurance in place for a number of years before you can utilize the benefit.Question and Answer Sheets (FAQs)
When is purchasing life insurance with living benefits beneficial?
Taking advantage of living benefits might be worthwhile if you will likely benefit from a feature or if a rider can significantly reduce risk. For instance, it is tragic to witness a person become disabled and then pass away without receiving insurance coverage. That situation can be avoided with a disability waiver of premium.Which insurance providers provide life insurance with living benefits?
The most significant insurance companies provide a variety of living benefits. But it's crucial to look over each policy's specifics and determine which features meet your requirements. The best insurers to choose are those with solid financial standing, affordable rates, and a range of products that suit you and your loved ones.