What Are Life Insurance Living Benefits?

Life insurance living benefits provide extra financial security while you’re still alive, but they come at a cost.
Robin Hartill, CFP®
By Robin Hartill, CFP® 
Edited by Lisa Green Reviewed by Tony Steuer

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Nerdy takeaways
  • Living benefits in life insurance are benefits that you can access while you’re alive.

  • Some living benefit riders pay out part of your death benefit if you’re diagnosed with a serious illness.

  • Permanent policies build cash value, which can supplement your income when you retire.

Most people buy life insurance to provide financial protections for their loved ones when they die. But some policies offer benefits while you’re still alive. If you purchase life insurance with living benefits, you may be able to access part of your death benefit if you become ill or use its cash value to supplement your income.

What are life insurance living benefits?

Life insurance living benefits are policy features that provide financial protection while you’re still living. There are two main types of living benefits in life insurance:

  • Policy riders. A life insurance rider is an add-on to your policy that provides additional protection. Some policy riders allow you to receive part of the policy’s death benefit in some circumstances, like if you’re diagnosed with a serious illness or you need long-term care.

  • Cash value life insurance. Permanent life insurance policies have a built-in savings component called cash value that grows over time. You can usually take a loan or withdraw from the policy’s cash value. Some people use their policy’s cash value to supplement their retirement income.

Living benefits in life insurance can provide an extra layer of financial security if you become sick or need an extra source of income. One downside, though, is that living benefits often reduce the policy’s death benefit for your survivors.

Living benefits riders

A living benefits rider is an additional feature in a life insurance contract where the insurer agrees to provide benefits if you’re diagnosed with a chronic or terminal illness, you become disabled, or you require end-of-life care.

Though you have to pay extra for most living benefits riders, some may be automatically included in your policy, depending on the insurer. If you have an older policy, your insurance company may have added one of these riders, so be sure to check.

Some common types of living benefits riders include:

  • Accelerated death benefit rider. This feature pays out some or all of a policy’s death benefit if you’re diagnosed with a serious illness. Your payout reduces the benefit that your survivors will receive after you die. Insurance companies have different rules for when an accelerated death benefit rider is activated. For example, you may not be eligible to access the death benefit unless you have a terminal illness, typically defined as a diagnosis where your life expectancy is 24 months or less.

    Some insurers also offer critical illness riders or chronic illness riders, which can trigger a payout if you have a heart attack, stroke, cancer, renal failure or certain other qualifying illnesses.

  • Long-term care rider. An LTC rider pays part of your policy’s death benefit if you require long-term care that traditional health insurance doesn’t cover. Your policy may pay out a lump sum or a percentage of your death benefit each month. As with an accelerated death benefit rider, the payout may reduce the amount your beneficiaries receive. Many policies have a waiting period of about 90 days before you can access this benefit.

  • Return-of-premium rider. A return-of-premium rider will refund some or all of your term life insurance premium payments if you outlive your policy term. This is one of the most expensive life insurance riders available. If you cancel your policy before it expires, you won’t receive a refund.

  • Waiver of premium rider. This benefit allows you to suspend life insurance premium payments while keeping the policy in force if you become disabled and can no longer work. Many policies have a waiting period of a few months to a year from the time of the diagnosis until this benefit will kick in, though many insurers will reimburse you for premiums paid during this window if your claim is approved.

Cash value as a living benefit

When you buy permanent life insurance, your premium is split between the cost of insuring your life and the cash value component. You can eventually use cash value life insurance to take out a policy loan, make withdrawals, or surrender the policy altogether. Some people also use their cash value to pay premiums or purchase additional coverage called paid-up additions. Usually, you won’t owe taxes on money you borrow or withdraw as long as you don’t take out more than you paid in premiums.

Cash value can be a valuable source of money to retirees who are on a strict budget. However, withdrawals and outstanding loans will generally reduce your policy’s death benefit.

How to get life insurance with living benefits

It’s important to think about whether you need life insurance with living benefits while you’re shopping for a policy. You typically can’t add riders to an existing policy. Make sure you read your contract thoroughly so you know whether any riders are automatically included and how the riders work. Ask your life insurance agent or broker about the cost of any additional living benefit riders.

Also, consider whether you want access to living benefits in determining what type of life insurance to buy. Term life policies only offer a death benefit and don’t build cash value. Any living benefits you receive from term life insurance will come courtesy of a policy rider. If you want access to cash value, you’ll need to purchase a permanent life insurance policy, such as whole life or universal life.

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Cost of life insurance with living benefits

The cost of life insurance with living benefits can vary widely. For example, some insurers automatically include some living benefit riders, such as an accelerated death benefit rider or a waiver of premium rider. But with some policies, these add-ons can increase life insurance premiums by as much as 25%.

Other living benefit riders are far more expensive. For instance, buying term life insurance with a return of premium rider often costs about five times more than if you purchased a standard policy.

Also, permanent life insurance policies that build cash value are substantially more expensive than term life policies with a similar death benefit. For example, Quotacy estimates that the premiums on a $250,000 policy for a 35-year-old man in excellent health could be anywhere from seven to 14 times more expensive with permanent life insurance compared to a 30-year term policy.

Frequently asked questions

Living benefits for life insurance are policy features that are available to you while you’re still living. Examples include living benefit riders, which may allow you to access some of your death benefit if you’re diagnosed with a major illness, along with cash value in permanent life insurance.

Both term life insurance and permanent life insurance can offer living benefits, but only permanent life insurance has cash value living benefits. With both term and permanent policies, you can often purchase riders that offer living benefits.

To determine whether you need life insurance with living benefits, consider the level of financial security you’re seeking. If you want the flexibility to use part of your death benefit in the event of a catastrophic illness, life insurance with living benefits may be worth any additional cost. If you’re hoping to eventually use cash value as a retirement income strategy, discuss your options for permanent life insurance in addition to alternatives, such as buying a cheaper term policy and investing the money you save on premiums.

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