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Understanding Life Insurance With Living Benefits In 2023

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Life insurance is designed to protect your family in the event of your death. In fact, that’s the stated purpose of a life insurance policy, to replace your income if you were to die unexpectedly and prevent your family from suffering financial hardship.

So, beyond making sure that premiums are paid when due, most people don’t think much about their life insurance policy during their everyday life. Policyholders think of the benefits of life insurance as being for their families and not them. For the most part, that’s true. 

However, there are actually ways your life insurance policy can be used to your benefit while you’re still alive. It’s what’s called life insurance with living benefits.

These benefits are services added to your policy that you’re able to access while you’re alive. Many people aren’t even aware that their policy may offer these benefits, but they can be a major help in times of crisis and financial stress. Living benefits are generally added to your policy as riders and aren’t part of every life insurance policy.

Read to learn about how these benefits might work and what to look for in a policy.

Types of Living Benefit Life Insurance Riders

A policy rider is an addition or change to a legal document. When it comes to life insurance, riders are generally added benefits that can change your base policy’s dynamic. Riders can increase your policy’s financial value, make it easier to change your policy down the road or allow you to cover additional family members and more.

Some riders are free, and you won’t pay any extra to have them on your policy. These riders are generally built into your policy as an additional policy feature, and you won’t need to do anything extra to get them.

Other riders have an extra fee associated with them. That means your premiums will be higher after you add one of these riders, but you’ll be getting additional benefits that the base life insurance policy wouldn’t normally offer.

Riders can be attached to permanent life insurance plans and term life insurance policies as long as the insurance company offers them. Some riders are more common on certain types of policies.

For example, a policy conversion rider allows you to change your term policy into a whole life policy without taking a new medical exam or providing any new evidence of insurability. A conversion rider is only found on term policies. 

The policy riders that we want to focus on specifically are living benefit riders. These riders are offered in different forms and can offer different benefits. They can also be found on both term and whole life policies except the long-term care rider, which is only available with permanent life insurance policies.

Cost of Living Benefit Riders at a Glance

Rider Name:Primary Use:Extra Cost:
Accelerated Death Benefit for Terminal Illness RiderPays out a portion of your death benefit if you have a terminal illness to help cover medical bills or replace your income.No
Chronic & Critical Illness RiderPays out a portion of your death benefit if you're diagnosed with a chronic or critical illness.Yes & No
Disability Income RiderPays a monthly stipend if you're disabled and unable to work for no longer than 2-years.Yes
Long-Term Care RiderPays a monthly pre-determined benefit from the death benefit to help pay for costs associated with long-term care needs.Yes
Waiver of Premium RiderWaives your premiums if you become disabled unable to work so that your policy doesn't lapse.Yes

Accelerated Death Benefit Riders for Terminal Illness

One of the most common living benefit riders is an accelerated death benefit rider. This rider is normally free and included as a standard feature on a vast majority of all life insurance policies.

An accelerated death benefit rider allows you early access to your death benefit if you receive a diagnosis of a terminal medical condition. You’ll be able to use the money from your death benefit so your family can pay the bills or other medical expenses.

Having this option can keep your family from going into serious debt, especially if your spouse is a stay-at-home parent, and the family relies solely on your income.

Generally, you’ll only be able to access a portion of your death benefit amount, but you’ll be able to use it for any reason. You can plan for funeral costs, pay your medical expenses, go on one last vacation, or anything else you need during the last few months of your life.

You’ll need to meet a set of rules to qualify to use this benefit. The rules vary depending on your insurance company. Normally you’ll need to be diagnosed by a licensed medical physician of having a terminal diagnosis expected to result in your death within 12-24 months. 

Your policy will stipulate how much of the benefit amount you can access if you qualify for an acceleration of the death benefit. Again depending on the company, that amount might be as little as 25 percent and as much as 100 percent of your total death benefit.

So, say you had a $500,000 policy, and your insurance company allowed you to take 75% percent as an accelerated death benefit. Your policy, in this case, would allow you to take out $350,000 of the $500,000 to use before you passed away. The remaining $150,000 of the death benefit would pay out to your beneficiary when you have passed.

Best Accelerated Death Benefit Rider: Prudential Living Needs Benefit

Prudential LogoNearly every life insurance company offers a terminal illness benefit rider regardless if you choose a term or permanent life insurance policy.

Since the rider is commonly offered, we focused on the companies that would offer the largest percentage of the death benefit should terminal illness occur. 

This has led us to name Prudential and their Living Needs Benefit Rider as the best option for an accelerated death benefit rider. 

The policy rider offered by Prudential is a free rider that can provide up to 100% of the death benefit if diagnosed with a terminal illness and having less than 12 months to live. But that’s not all that the rider offers. 

In addition to a terminal illness payout option, the Prudential Living Needs Benefit Rider can also provide early access to the death benefit if you become confined to a nursing home and are expected to remain in the nursing home for the rest of your life.

The rider also offers a third potential benefit in allowing early access to the death benefit should you need a vital organ transplant that, without it, would result in death within six or months or less.

Chronic and Critical Illness Riders

Two of the popular living benefit life insurance riders offered on many of today’s life insurance policies are the chronic and critical illness riders. 

Both the chronic and critical illness riders are often paired together to offer a complete package of financial protection against death and unexpected illness such as stroke, cancer, heart attack, or paralysis. 

Unlike the accelerated death benefit rider, your illness with a chronic or critical medical condition doesn’t need to be terminal for you to use this benefit.

The chronic illness rider focuses on providing a financial benefit if a policyholder becomes chronically ill and cannot perform at least two of the six Activities of Daily Living (ADL). 

The six Activities of Daily Living include:

  • Bathing
  • Continence
  • Dressing
  • Eating
  • Toileting
  • Transfering

If a qualifying chronic illness has occurred and you cannot perform two of the ADL requirements, you may file a claim to receive a payout from the death benefit. The insurance company will evaluate your claim and, if approved, will pay out a percentage of the total death benefit.

The money you receive from a living benefit payment can help pay for medical expenses or be used to help maintain household bills. There are no restrictions on how you must use the money, and you are not required to pay it back to the insurance company. The money is subtracted from the death benefit leaving any remaining money as death benefit protection that would be paid to your beneficiary upon your passing. 

The critical illness rider works similarly to how the chronic illness rider works. Where a qualifying chronic illness would be based on not being able to perform activities of daily living, the critical illness provides a payout if one or more of the following has occurred:

  • Heart attack
  • Stroke
  • Cancer
  • End-Stage Renal Failure
  • ALS
  • Major Organ Transplant
  • Blindness
  • Paralysis

The amount of money that can be accessed from the death benefit of the life insurance policy can be as high as 100% of the total policy value. A claim must be submitted to the insurance company, where it will be evaluated to determine the percentage that can be pulled from the death benefit and paid as a one-time lump sum payment.

Best Chronic and Critical Illness Rider: Transamerica Trendsetter Living Benefits

Transamerica Logo BlackMore than a few excellent companies can offer either a chronic illness rider, critical illness rider, or both riders combined into one policy.

When we take a look at all the different plans, we have to place Transamerica and their Trendsetter Living Benefits LB term life insurance plan out in front.

Transamerica was one of the first life insurance companies to offer living benefits to a life insurance policy and even named it “Trendsetter Living Benefits.”

Trendsetter Living Benefits is a term life insurance policy that offers all three living benefit riders rolled into one plan. These include chronic illness, critical illness, and terminal illness riders. 

Applicants between the ages of 18-80 are eligible to apply for coverage and also have the option to choose from level premium term lengths of 10, 15, 20, 25, or 30 years. Death benefits range from $25,000 up to $2,000,000.

If you’re interested in a no medical exam option, Trendsetter Living Benefits can offer it as long the coverage you are applying for is between $25,000 and $249,999.

Be sure to also check out our full review on Transamerica’s Living Benefits term life insurance if you’re interested in learning more about this coverage and all its features.

Disability Income Riders

A disability income rider has become a sought-after living benefits rider that works if you have become sick or injured, leaving you totally disabled and are unable to perform work.

This rider goes beyond waiving your life insurance premiums. A disability income rider will actually pay you a monthly stipend income while you’re disabled and are recovering.

The stipend you receive from your life insurance policy is intended to replace a portion of your income that can help you to continue paying your household bills.

This makes it very similar to a traditional disability insurance policy you might have seen sold by companies that sell medical benefits. In this case, your disability benefits would be built right into your life insurance policy as a form of living benefit.

For a life insurance policy with disability income benefits to work, you’ll generally need to be totally disabled to activate a monthly income stream. The definition of “totally disabled” will depend on your insurance company.

In most cases, it means your disability must prevent you from working in your current occupation. As with any disability benefit, you will be required to go through an elimination period that often 60-90 days before benefits will begin paying.

If your disability qualifies for a monthly benefit payment, you can generally expect to receive an income for a maximum of two years or until you have recovered and cleared to go back to work.

Adding a disability income living benefit to your insurance policy will raise your premium, but it can be cheaper than having a separate disability insurance policy. 

Best Disability Income Rider: Assurity Term Life Insurance

Assurity LogoThe monthly disability insurance rider is what we would classify as a rare living benefit rider. It is only offered by just a few companies making it a tough choice to pick the best option.

However, when we compare each company and the disability benefits each of them can offer, we have to lean towards naming Assurity and its term life insurance as the best company for the disability income rider. 

Assurity Term Life Insurance is available to applicants ages 18 through 75. The term insurance is available in multiple term lengths ranging from 10, 15, 20, and 30 years. Coverage amounts range from $25,000 up to $10,000,000 with no medical options available for death benefits that are no greater than $500,000 ($350,000 if you’re between the ages of 51-65).

In addition to an all-around solid term life insurance coverage, you have the option to add the monthly disability income rider to your life insurance plan. This rider is available in two options:

  • Accident only disability income rider
  • Accident and sickness disability income rider

You will have the option to choose your monthly income benefit amount, which is available as low as $300 per month up to $3000 per month. It should also be noted that the monthly benefit amount is limited to a maximum of 60 percent of your gross earned monthly income.

The benefit amount is payable for up to two years after a 90 day elimination period has been met.

Long Term Care Riders

Long-term care riders are another rider type that can take the place of having to purchase a separate insurance policy. In this case, it’s long term care insurance or LTC for short.

The long-term care living benefit riders help cover long-term care costs in a nursing home or assisted living facility. It’s a common misconception that medical insurance, like Medicare, will pay for long-term care, but that’s not actually the case.

Medical insurance will only pay for temporary stays in skilled nursing facilities or rehabilitation facilities. It doesn’t pay for a permanent move into a long-term care facility.

Life insurance with a long-term care rider can cover at least some of this cost. If you’re diagnosed with an illness leaving you unable to perform 2 out of 6 activates of daily living (ADL’s), an LTC life insurance rider can kick in paying you a monthly income from the death benefit of your life insurance policy. 

Long-term care is a significant expense, and people often find themselves going into debt to cover it. According to the United States Department of Health and Human Services, average costs of long term care include:

  • $6,844 a month for a shared room in a nursing facility
  • $7,698 a month for a private room in a nursing facility
  • $3,628 a month for a one-bedroom unit in an assisted living facility 
  • $20.50 an hour for a home health aide
  • $20 an hour for nonmedical aid or companion at home
  • $68 a day for the use of an adult day health care center

The amount of money you can expect from the death benefit will vary depending on how the insurance company has structured its LTC rider. In most cases, the monthly benefit amount is a percentage that can range from 1% to 4% of the death benefit.

This type of living benefit rider will add a higher cost to your monthly premiums and are only available on permanent life insurance plans such as universal life and whole life insurance. However, they are an excellent alternative to a traditional long-term care policy if you are concerned about costs.

Best Long-Term Care Rider: John Hancock

John Hancock LogoLong-term care insurance can be expensive. It can become easy to pass on purchasing a long-term care plan if the cost is not in the family’s financial budget.

The long-term care rider can be an excellent alternative to look into.

Anyone who requires life insurance and is worried in the slightest about needing some form of long-term care assistance in the future should consider adding the long-term care rider to their life insurance. 

As with the chronic and critical illness riders, the LTC rider is one of the newer policy riders added to life insurance, specifically permanent life insurance plans. 

When it comes to finding a company that can offer the living benefit rider, you will have a great lineup of some highly rated AM Best companies to choose from. One of those companies that should be looked at right away is John Hancock and their long-term care rider.

John Hancock’s long-term care rider funds to help pay for qualified long-term care expenses by accelerating the death benefit. The maximum monthly benefit amount is based on 1%, 2%, or 4% of the policy death benefit which will need to be elected at issue.

The monthly maximum benefit amount that can be accelerated is $50,000, making it one of the highest monthly benefit payouts offered under a long-term cared rider.

John Hancock also offers an optional critical illness rider that can be paired with the long-term cared rider to provide protection to the fullest against a critical illness and potential long-term care needs. 

Waiver of Premium Rider

A waiver of premium rider is one of the oldest and most common types of living benefit riders. Suppose you choose to add this policy rider to your life insurance policy. In that case, it will allow you to stop making premium payments without losing your policy if you become totally disabled.

This means that if you can no longer work because of a disability, you won’t have to worry about your policy lapsing. Insurance companies will have set rules about what qualifies as a permanent disability.

This rider isn’t meant to cover you forever. Generally, your premiums will only be waived as long as your disability remains or until you reach 65.

You’ll pay a little extra for this rider, which will increase your monthly premiums. You might also have a waiting period of 3 to 6 months before this living benefit rider will kick in and begin waiving premiums.

On another note, you will not have difficulty finding an insurance company that offers a waiver of premium rider as it is widely available.

Best Waiver of Premium Rider: Lincoln Financial

Lincoln Financial Group LogoMost life insurance companies offer the waiver of premium rider, and all of them pretty much offer the same benefits. 

When choosing a company that represents the best waiver of premium rider, we look at two factors, how long the elimination period is, should total disability of the insured occur before premiums will be waived, and at what age the rider terminates.

Out of over two dozen companies to offer the waiver of premium rider, Lincoln Financial is the company that we rate as the best. The insurance company’s rider has a low 4 month elimination period, whereas most other riders are 6 months, and the rider’s termination age is age 65.

Living Benefits Vs. Cash Value Benefits

Living benefit riders aren’t the only way you can use your life insurance policy while you’re alive. Whole and universal life insurance policies can build a cash value savings account.

Each time you pay your premiums, part of your payment will go towards the cost of having your policy, and another portion will go into a cash-value account. Over time, your cash will increase throughout the years as you continue to pay on your policy.

Many insurance policies include additional ways to increase this cash value even further. This might be an account that accumulates an adjustable interest rate that changes based on how well certain market indexes perform or, if a whole life insurance policy, a plan that is eligible to receive dividends.

When you have a whole or universal policy with cash value, you can borrow against your cash value. You can take it out as a loan and pay an interest rate until you pay back the loan or request a withdraw by requesting partial surrender, reducing the death benefit.

This makes a life insurance policy with a cash value account a lot like a built-in savings account. It’s one of the financial benefits of whole and universal life policies. If you have an emergency, you can borrow this cash whenever you need it.

This might sound a lot like a living benefit, and it is. A living benefit is any benefit a life insurance policy can provide to the insured while they are alive. Cash value accumulation is one of the oldest living benefits life insurance can offer.

Living Benefits and Taxes

Life insurance death benefit payouts are always tax-free. Your beneficiaries will never pay taxes on the death benefit payout. The IRS enforces this rule.

In most cases, any living benefits received from the death benefit of a life insurance policy are generally not subject to Federal income tax. On the other hand, some state laws may have rules on life insurance and living benefit payments. 

Most insurance companies will word your policy and structure your living benefits in a way that reflects this, stating that if you are to accelerate any living benefits, be sure to check with a tax professional regarding the tax treatment of accelerated death benefit.

That said, this is another time when it’s a good idea to check your policy’s language closely. You don’t want to wind up paying unexpected fees or taxes, especially in the kinds of stressful situations that often trigger living benefits.

Before accelerating any living benefit payment, make sure you know exactly what the tax rules are.

Benefits of Living Benefit Riders

Living benefit riders can be of significant help in times of financial crisis caused by an unexpected medical condition. There are several times when it makes sense to add a rider to your policy and times it makes sense to use your riders.

Benefits of living benefit riders include:

  • You’ll have money to use when you can’t work due to illness or injury. This can prevent you and your family from going into serious debt. 
  • You might be able to pay for procedures and treatments that your medical insurance doesn’t cover.
  • You can use the money during the final months of your life to do things you wouldn’t otherwise be able to accomplish.
  • Some living benefits riders are free or low cost.
  • Riders that additional fees might be less expensive than a separate insurance policy with similar coverage. They might also be a lot less than the cost of long term care.

Drawbacks of Living Benefit Riders

Living benefit riders aren’t the right choice for everyone in all situations. It’s always important to make sure you know exactly what you’re adding to your policy and what you’re paying for before finalizing anything.

Some drawbacks to living benefit riders include:

  • They might drive up the cost of your policy and make it difficult for you to afford your premiums.
  • The company that offers you the best overall quote might not offer the riders you want to add.
  • Your death benefit will be decreased. Any living benefit you use will be deducted from your final death benefit. In some cases, this makes a lot of sense. It’s a lot more expensive to pay off debt than it is to pay bills upfront. However, many people take out life insurance policies with specific final goals for their family in mind. They might want their family to be able to continue to pay their mortgage, for their children’s education, and more. Taking a large chunk out of the death payout can mean those goals will need to be adjusted. 

In the end, it’s your choice whether to add living benefits riders and your choice if using them makes the most financial sense.

Frequently Asked Questions About Living Death Benefits

If you’ve still got questions, we’ve got you covered. Keep reading for answers to some common questions.

Do all insurance policies offer the same living benefit riders?

No. Some riders, like accelerated death, are very common, but they’re still not found on all policies. If you’re looking for a certain rider you’ll need to make it a priority while you’re shopping for policies. An agent or broker can help you narrow down policies that have riders you want at rates that fit your budget.

Are there fees to use a living benefit rider?

Yes. Choosing to accelerate the death benefit of a life insurance policy for a living benefit payment will likely have an administrative fee.

The amount of the fee will vary depending on the insurance company but its usually a few hundred dollars based on the some of the top living benefit companies that we work with.

Again, before purchasing any policy that offers extra features in addition to the death benefit, be sure to check the language to understand any potential fees.

Are there limits on how much money I can get from a living death benefit?

The amount of money you can accelerate from the death benefit of your life insurance policy will vary on the insurance company and the type of living benefit rider you have elected.

Some living benefit riders offer a defined benefit payment structure where if a qualifying claim is submitted, you will know exactly how much you will be getting from the death benefit.

In contrast, riders that are included in your coverage at no additional costs will be determined based on certain factors set forth by the insurance company to determine a payment amount.

Most living benefit riders have the ability to accelerate up to 100% of the death benefit, but that doesn’t necessarily mean that will occur. For example, let’s say your term life insurance policy offers both chronic and critical illness riders. 

Your death benefit is $1,000,000, and your term length is for 20-years. You are currently 5-years into your term policy when you suffer a heart attack leading to hospitalization and time away from work.

Because a heart attack is classified as a qualifying critical illness, you choose to elect to accelerate the critical illness benefit of your life insurance policy for a cash benefit payment and proceed with filing a claim with the insurance company. 

The insurance company will evaluate your claim to determine a percentage of how much death benefit they will pay based on a few factors but most importantly being how the medical condition will reduce your life expectancy. 

A higher life expectancy will result in a lower payout, where a lower risk expectancy will result in a higher payout.

Other living benefit riders, such as the monthly disability income rider and waiver of premium, have a timeframe for how long benefits will be payable. For example, the monthly disability income rider has a maximum two-year payable benefit period, whereas the waiver of premium is generally up to age 65.

Do I have to accept a living benefit payment?

You are not required to accept a living benefit payment after a claim has been submitted, reviewed, and approved.

Some companies may also allow you to adjust the payout to a lesser amount if you want to leave more money towards the death benefit rather than accelerating it for immediate cash.

Can I get a living benefits policy without having to take a medical exam?

Absolutely. Many life insurance companies offer the option to skip the traditional medical exam that life insurance often requires. Several of these companies even offer living benefit options.

The below table lists our top term life insurance companies that offer both living benefits and the ability to skip the medical exam potentially.

CompanyCoverage AmountLiving Benefit Riders
ANICO$250,000 - $1,000,000Chronic, Critical & Terminal Illness Riders
Assurity$25,000 - $500,000Critical Illness & Monthly Disability
North American$100,000 - $1,000,000Chronic, Critical & Terminal Illness Riders
Transamerica$25,000 - $249,999Chronic, Critical & Terminal Illness Riders

Can I add a living benefit rider to a policy I already have?

Sometimes. It depends on the rider and the rules set by the insurance company offering the living benefit rider. Some policies will allow you to add a rider at any time by simply contacting your insurance company.

Other policies will ask that you take another medical exam before they’ll approve a new rider. Be cautious if this is the case. If your health has declined the company could increase your rate or even deny you a policy altogether.

Life Insurance with Living Benefits - Final Word

Today is a smart time to get started if you’re interested in a policy with living benefits. You can get a great term life insurance policy with living benefit riders without taking a medical exam.

At No Medical Exam Quotes, we can show you rates from the best companies offering coverage without a medical exam. Just fill out our easy form, and you’ll be on your way to a policy with up to $1,000,000 in coverage. Once you have quotes, you can customize your policy with living benefits and any other riders offered by the company you select.

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Picture of Jeffrey Manola - Life Insurance Expert
Jeffrey Manola - Life Insurance Expert

Jeffrey Manola is the founder of No Medical Exam Quotes, an online insurance agency that strongly focuses on helping people shop for the perfect life insurance policy. He is a licensed life insurance expert and content creator for the website.

Before becoming a life insurance agent, he served in the United States Marine Corps, transitioning from serving his country to helping families find affordable life insurance coverage beginning in 2009. Since starting a career as a licensed life insurance agent, Jeffrey has helped thousands of families with their life insurance needs.

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