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Living benefits come in the form of life insurance riders attached to a life insurance policy. Sometimes they’re also known as accelerated death benefits and are available on both term life insurance and permanent life insurance policies.
Living benefits essentially allow the insured to access money from the policy’s death benefit while they’re still alive. These funds can be used to pay for expenses associated with terminal or chronic illness, such as medical care, hospice or nursing home care, in-home caretakers and more. The trade-off is that accessing living benefits reduces the death benefit available to your beneficiaries when you die.
Examples of common living benefits include:
Terminal illness: If you are given a terminal diagnosis with a life expectancy of six months to two years (exact timeline depends on the insurer), you can use this rider to cover end-of-life care and other associated expenses. Often, a terminal illness rider is automatically included in the policy without extra cost, but you should check with your insurer to find out.
Chronic illness: This rider applies if you’re diagnosed with a chronic illness that prevents you from performing at least two of the six “activities of daily living” (ADLs). These are bathing, eating, getting dressed, toileting, transferring and continence.
Critical illness: You can also access living benefits with a critical illness rider, covering qualifying illnesses that shorten life expectancy and have high medical costs. Examples include heart attack, stroke and kidney failure.
Long-term care: This rider allows you to access living benefits if you need to pay for long-term care services and you can’t perform at least two of the activities defined under ADL guidelines.
Keep in mind that to access living benefits in life insurance, you will need to submit a claim to your insurance company along with medical records and other documentation. You may receive living benefits as a lump sum or on an as-needed basis. Often, you’re limited in how much you can withdraw to a certain percentage or dollar amount of your policy’s death benefit, such as 80%.
Living benefits may be included with your life insurance policy at no additional charge. For example, a terminal illness rider is typically included automatically on term life policies for no additional fee. Ask your insurance agent if there’s a charge or a critical illness or chronic illness rider.
If you’re interested in adding living benefits to your policy, be sure to ask insurance companies about your options when shopping for a policy.
It’s common to opt into a living benefits rider when you first purchase your life insurance policy. Many policies also automatically come with at least one living benefits rider, such as terminal illness.
Even so, it may be possible to add on a living benefits rider later. There might also be a waiting period during which you cannot access living benefits. Once the waiting period is up, you can file a claim and access your benefits if you’re eligible