Selecting an insurance provider is a significant decision for adults, and finding a high-quality plan can seem like a never-ending challenge to many people. Given the massive expanse of options, plans, and riders, it’s easy to overlook details like living benefits when selecting a life insurance policy.
However, living benefits life insurance is a vital asset you must consider before deciding on a life insurance carrier and a suitable policy. But what living benefits can you expect from insurance companies, and how can you decide on the right policy for you and your family?
This article will help you by guiding you through everything you know about living benefits life insurance, from different types of living benefit riders to why you should invest in insurance with living benefits. Let’s dive in!
What are the Types of Life Insurance?
Life insurance can be divided into two primary categories: term and permanent life insurance. Depending on your needs, one policy may be more suitable. Here’s a breakdown for each option:
- Term life insurance: The first type is term life insurance, which describes a policy that provides coverage for a specific period or a “term.” If the individual passes away during the policy’s coverage period, the remaining portion of your death benefit is given to the beneficiary or beneficiaries. Term life insurance offers an accelerated death benefit. However, this option is not permanent and does not accumulate cash value, so you could be left vulnerable once the term is over.
- Permanent life insurance: This insurance accumulates cash value and lasts your entire life, provided that you are up-to-date with your premiums. Cash is accumulated tax-deferred, and these policies might offer accelerated death benefits. Permanent life insurance is typically separated into two categories: whole and universal. This policy offers a lifetime value, and policyholders can access their life insurance cash value through surrender, withdrawal, loans, or paying part or all of their insurance premiums.
What are Life Insurance Living Benefits?
Living benefits in insurance describe a policyholder’s ability to use money from their death benefit before death, especially in cases where the individual is severely ill. The term can also refer to any features of your insurance policy that you can use during your lifetime.
With term life insurance, individuals only pay a lump sum to cover the death benefit, making it a highly cost-effective option compared to other policies. However, not all term life insurance policies offer policyholders living benefits–rather, you will likely have to add accelerated death benefit riders to your policy for an additional cost.
Does All Life Insurance Have Living Benefits?
While many policies provide some living benefits, others do not automatically include these costs. You might struggle to find policies with built-in benefits that don’t incur additional costs. Many policies require extra fees for policyholders who want to add living benefits riders to their plan.
How Much Do Living Benefits Plans Cost?
The cost of living benefits life insurance is a concern for many when deciding which riders must obtain thorough coverage. With the life insurance industry totaling over 945 billion USD in revenue in 2021 despite only 52 percent of American adults owning a policy, it’s no wonder that many people are hesitant to include riders in an already expensive plan.
Life insurance companies offer varying premium prices depending on a few factors. For example, the cost of your living benefits plan will likely be influenced by the following factors:
- The term length for term life insurance
- The type of insurance policy you have
- Your age–the younger you are, the less your premium will likely be
- Smoking status, as this could affect your lifespan
- Current health–the healthier you are, the lower your premium will likely be
Because costs vary heavily between insurance companies, speaking with a trusted financial advisor is essential. Always consult an attorney, certified public accountant, or professional financial expert before selecting a policy that will incur additional costs.
Types of Living Benefits
Term and permanent life insurance policyholders have access to numerous living benefits, including the following.
For Chronic Illness
Chronic illness riders are available for individuals diagnosed with an illness that prevents the policyholder from performing at least two of the following six “activities of daily living,” or ADLs. These activities are:
- Eating
- Bathing
- Toileting
- Getting dressed
- Transferring
- Continence
For Terminal Illness
Policyholders also have the option to receive a terminal illness rider. This rider applies to those diagnosed with a terminal illness with a life expectancy between six months and two years. The terminal illness rider allows policyholders to cover their end-of-life medical care costs and other expenses.
A terminal illness rider is often included in your policy automatically–however, some insurance companies have different protocols, so double-checking is essential. Rather than assume that your provider will automatically include medical expenses, conduct thorough research before choosing a policy.
Additionally, you might encounter a waiting period to use your living benefits from a terminal illness rider before you can access the funds. The amounts used are taken away from your beneficiary’s end-of-life funds.
For Critical Illness
A critical illness rider is applicable for policyholders dealing with specific illnesses that create high medical costs and a shorter life expectancy. For instance, stroke or heart attack life insurance with living benefits can provide the individual with the necessary care. Like terminal illness riders, a critical illness rider deducts funds from your benefit payout after passing away.
For Long-Term Care
Some policies provide benefits for the policyholder’s long-term care, allowing the individual to use death benefit funds not covered by their health insurance policy. Long-term care insurance policies with living benefits are often expensive, but they are essential for many people that will require long-term care once they are older.
Some long-term care insurance services include the following:
- Facility stays
- Home healthcare services
- Adult daycare services
Return of Premium Rider
A return of premium rider is a specific policy for term life insurance that returns your paid premiums once your policy ends. This rider only applies if you are alive at the end of your term insurance, and if you pass away beforehand, the death benefit is paid to your beneficiary.
Disability Waiver of Premium
A disability waiver of premium is an option for those with a disability that prevents them from earning income. This option allows the policyholder to stop making premium payments while maintaining their life insurance.
Do I Need Living Benefits Life Insurance?
Adults should seriously consider selecting a life insurance policy with sufficient options for living benefit riders. While this might seem like an unnecessary expense, investing in living benefits can prove to be vital down the line.
Do you need living benefits life insurance? Consider how living benefits can help you with future expenses and why you should take advantage of a living benefits rider.
- Living benefits life insurance can help terminally ill patients manage financial hardships during a difficult and stressful period. Without a living benefits rider, the policyholder’s funds are essentially off-limits until their end-of-life. By choosing a living benefits rider, you can ensure that any future medical costs are taken care of or, at the very least, far more manageable than they would be without.
- A living benefits rider provides essential peace of mind to families with a history of chronic illnesses. Depending on your family history, you may benefit more from living benefit riders.
- Living benefits life insurance is helpful if you anticipate the need for long-term care in the future. For instance, if you are child-free or don’t have the means for at-home care from a family member, you and your spouse should consider investing in a long-term care rider. Given the high costs of quality long-term care, you should consider this investment sooner rather than later.
- A living benefits policy covers you if you want to prepare for the unexpected. Life is unpredictable, and without thorough planning, you might end up incurring hefty costs in the future that you and your family are unable to cover upfront.
Tips When Choosing a Policy
Choosing a comprehensive life insurance policy is naturally stressful. Here are some tips to remember as you navigate this process.
- Before deciding, consult your financial advisor, insurance agent, attorney, or certified public accountant.
- Make a thorough outline of your coverage needs before purchasing living benefits riders.
- Consider your situation to decide whether permanent life insurance is worth the additional costs or if term insurance will suit your situation and budget better.
- Compare your options before deciding to ensure that you’re getting the best rate.
- Focus on internal costs, not only the premiums.
- Secure temporary coverage while you’re waiting to lock in a long-term plan.
- Conduct your financial research to understand better what to expect from your life insurance policy.
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