Why Should You Purchase Life Insurance with Living Benefits

Why Should You Purchase Life Insurance with Living Benefits?

Life insurance is meant to help your loved ones financially. If you die, it pays money to them. But some life insurance policies also provide what are called living benefits. These can be used while you’re still alive.

What are Living Benefits in Life Insurance?

Living benefits allow you to access part of your policy’s death benefit early. You can use this money if you get a serious illness or injury. This can help pay for treatment and other costs.

Common living benefits include:

  • Accelerated death benefits
  • Chronic illness riders
  • Critical illness riders

These allow you to take an advance on the death benefit if certain criteria are met. Each type of living benefit has specific rules and requirements.

Pros and Cons of Life Insurance with Living Benefits

Like most choices, life insurance with living benefits has advantages and disadvantages. It’s important to weigh the pros and cons before deciding.

Pros of Life Insurance Living Benefits

Protection from Financial Hardship One key advantage is financial protection during an unexpected health crisis. Living benefits provide cash when you may need it most. This can help cover medical bills and living expenses when money is tight.

No Out-of-Pocket Premiums for Living Benefits Typically, living benefits riders don’t require an extra premium payment. They are included with your regular life insurance coverage. This gives you extra protection at no additional cost.

Retain Some of the Death Benefit
When you use living benefits, you only access a portion of the total death benefit. The remaining portion is still intact and goes to your beneficiaries after you die.

Tax Benefits In most cases, the money accessed through living benefits is not considered taxable income. This allows you to use the full amount for your needs.

Peace of Mind Simply knowing you have a backup plan can provide immense peace of mind. Living benefits give you options and financial flexibility during difficult times.

Cons of Life Insurance Living Benefits

Reduced Ultimate Death Benefit A downside is your policy’s death benefit is reduced by any amount you access through living benefits. Less is then left behind for your beneficiaries.

Health Qualification Requirements For chronic and critical illness living benefits, you must meet specific health criteria and qualifications. This can sometimes be difficult to satisfy.

Benefit Amount Limits There are maximum dollar limits on how much of the death benefit you can accelerate and receive through living benefits. These limits vary but cap the total amount available.

Potential to Impact Other Benefits Using living benefits may reduce or eliminate your ability to access other riders or policy benefits tied to the death benefit amount.

Not Available on All Policies Living benefits are not automatically included on all life insurance policies. You may need to pay extra or buy specific products to get them.

What are Some Common Types of Living Benefits?

Let’s look at some of the most common living benefit riders available on life insurance policies:

Accelerated Death Benefit Rider This rider allows you to take an advance on a portion of the death benefit if you are diagnosed with a terminal illness.

Chronic Illness Rider You can access funds if you are unable to perform certain basic daily living activities for an extended time period due to chronic illness.

Critical Illness Rider Critical illnesses like cancer, stroke, or heart attack generally qualify you to receive funds from this living benefit.

Long-Term Care Rider This rider provides access to funds if you require long-term care services, either at home or in a facility.

Each type of living benefit has specific terms and conditions. But they all provide options to access life insurance proceeds while still living.

Who Should Consider Life Insurance with Living Benefits?

Life insurance policies that include living benefits can make sense for many people. But they may be an especially good fit if:

  • You want more flexible access to policy cash value
  • You are concerned about the financial impact of a serious illness
  • You lack comprehensive health insurance coverage
  • You have no long-term care insurance or savings
  • You want to protect your retirement funds
  • You value the extra peace of mind and financial protection

The advantages of living benefits must also be weighed against the added costs or reduced death benefits. Careful policy review is required.

How Much Do Living Benefits Cost?

In most cases, basic accelerated death benefit riders are automatically included at no extra premium cost. But other living benefits often come with charges:

Chronic Illness Rider Typically an extra premium charge, often 5-10% of the base policy premium. Discounts are sometimes available for couples/spouses.

Critical Illness Rider
It may have an upfront cost, annual charge, or extra premium percentage. Costs depend on benefit amount, age, etc.

Long-Term Care Rider Premium charge is usually 5-12% of the base policy’s premium amount annually. Lower rates for couples/spouses.

Adding more comprehensive living benefits makes the life insurance policy cost more overall. But the benefits can far outweigh the costs in many situations.

Other Factors to Consider with Living Benefits

There are some other key considerations with life insurance living benefits:

Benefit Triggers Each type of living benefit has specific benefit triggers that must be satisfied to access funds. These are defined in the policy terms.

Tax Implications While living benefits are typically tax-free, there can be exceptions based on your specific situation. Review tax rules carefully.

Impact on Other Benefits Using living benefits may reduce or void other riders on your life insurance policy. Understand potential interactions.

Benefit Period Limits There are often maximum time periods or phases for receiving living benefit payouts. These may be capped at 25 months or so.

Residual Death Benefit
You can usually set a minimum residual death benefit amount that protects what passes to your beneficiaries.

Policy Structure Needed To get living benefits, you generally need a permanent cash-value life insurance policy, not term life coverage.

Working with an insurance professional can help navigate all the ins and outs.

Make the Most of Life Insurance Living Benefits

Does it make sense to pay extra for optional living benefits on your life insurance policy? That depends on your specific situation and priorities.

But for many, the advantages easily justify the added costs:

  • An emergency fund for medical crises
  • Protection against draining retirement savings
  • Added peace of mind and financial flexibility
  • No additional out-of-pocket premium for basic options
  • Tax advantages for benefit payouts

With the right structure and policy provisions, life insurance with living benefits can provide a valuable safety net for you and your loved ones.

Whether it’s accelerated benefits for terminal illness, chronic illness coverage, or critical illness protection, these “living” benefits ensure your policy does double duty. It protects your family after death but also supports you if you face devastating health challenges during life.

Give us a call today at 980-272-8203‬