Life insurance is an important investment for anyone who wants to ensure their family’s financial security in the event of their death.
However, many people don’t realize that life insurance policies offer more than just a safety net for loved ones left behind.
Living benefits are a key feature of many life insurance policies that can provide policyholders with a variety of financial protections while they are still alive.
Living benefits are policy features that allow policyholders to access a portion of their death benefit while they are still alive.
These benefits can be used to cover a variety of expenses, including medical bills, long-term care costs, and more.
There are several different types of living benefits available, including chronic illness riders, critical illness riders, and long-term care riders, each of which provides different types of protection.
In this article, we will explore the top benefits of living insurance and why it is more than just a safety net.
We will take a closer look at the different types of living benefits available and how they can provide financial protection for policyholders and their families.
Whether you are considering purchasing a life insurance policy or are already a policyholder, this article will provide you with the information you need to make informed decisions about your financial future.
Understanding Living Benefits
Living benefits are an essential aspect of life insurance policies and provide policyholders with a range of benefits that go beyond the traditional death benefit.
In this section, we will define living benefits, explore the types of living benefits available, and compare term and permanent life insurance policies.
Defining Living Benefits
Living benefits are a set of features that allow policyholders to access their life insurance benefits while they are still alive.
These benefits are also known as accelerated death benefits and can provide financial assistance for medical expenses or major life changes.
Types of Living Benefits
There are several types of living benefits available, including accelerated death benefits, critical illness, chronic illness, and long-term care.
Accelerated death benefits allow policyholders to receive a portion of their death benefit if they are diagnosed with a terminal illness.
Critical illness benefits provide policyholders with a lump sum payment if they are diagnosed with a critical illness such as cancer, heart attack, or stroke.
Meanwhile, chronic illness benefits allow policyholders to receive a portion of their death benefit if they are unable to perform two or more activities of daily living, such as bathing or dressing.
Lastly, long-term care benefits provide policyholders with financial assistance for long-term care expenses, such as nursing home care or in-home care.
Comparing Term and Permanent Life Insurance
Term life insurance policies typically offer lower premiums and higher death benefits than permanent life insurance policies. However, term policies do not offer living benefits and expire after a set term, usually 10, 20, or 30 years.
Permanent life insurance policies, such as whole life or universal life, offer both a death benefit and living benefits.
These policies typically have higher premiums than term policies but do not expire as long as the premiums are paid.
Financial Security During Critical Illness
Living insurance provides financial security during critical illness.
In addition to the death benefit, living insurance policies offer coverage for serious illnesses, such as cancer, heart attack, and stroke.
This coverage provides a lump sum payment to the policyholder upon the diagnosis of a covered condition, which can help cover medical expenses and other costs associated with the illness.
Coverage for Serious Illnesses
Living insurance policies typically include coverage for serious illnesses, which can be a significant asset for policyholders.
According to Selfgood Insurance Guide, critical illness insurance can complement regular health insurance by filling in coverage gaps.
It offers a lump sum cash benefit upon diagnosis of a covered condition. With that benefit, policyholders can get financial flexibility.
Accelerated Death Benefit Riders
Living insurance policies may also include an Accelerated Death Benefit Rider, which allows policyholders to access a portion of the death benefit if they are diagnosed with a terminal illness or a critical illness.
This rider can help cover medical expenses and other costs associated with the illness, providing peace of mind during a difficult time.
Accessing Funds for Medical Expenses
Living insurance policies can also provide policyholders with access to funds for medical expenses.
According to MoneyGeek, the average amount of benefits in force per critical illness policy is $29,104 for traditional individuals, $14,182 for group/worksite attained age, and $18,989 for group/worksite issued age plans.
This coverage can help policyholders pay for medical expenses, such as hospital stays, surgeries, and medication.
Additional Protection with Riders
In addition to the death benefit, life insurance policies can offer additional protection for policyholders and their families through riders.
These riders are optional add-ons that can be included in a policy for an additional cost.
Terminal Illness Rider
A terminal illness rider allows policyholders to access a portion of their death benefit if they are diagnosed with a terminal illness and have a life expectancy of 12 to 24 months.
This can help cover medical expenses and provide financial support during a difficult time.
Chronic Illness Rider
A chronic illness rider provides financial assistance to policyholders who are unable to perform two or more activities of daily living (ADLs) due to a chronic illness.
This rider allows policyholders to access a portion of their death benefit to cover long-term care expenses.
Critical Illness Rider
A critical illness rider provides a lump sum payment to policyholders who are diagnosed with a critical illness such as cancer, heart attack, or stroke.
This rider can help cover medical expenses and provide financial support during a difficult time.
Long-term care insurance riders are another type of rider that can be added to a life insurance policy. These riders allow policyholders to access their death benefit to pay for long-term care expenses.
It’s important to note that riders may have specific requirements and limitations, and policyholders should carefully review the terms of the rider before adding it to their policy.
Managing Life Insurance Costs and Benefits
Life insurance is an essential financial tool that provides peace of mind to the policyholder and their loved ones. However, the cost of life insurance premiums can be a concern for many individuals.
Here are some ways to manage life insurance costs and benefits.
Understanding Premiums and Cash Value
When purchasing life insurance, the policyholder must pay premiums to the insurance company.
The premium amount is determined by several factors, including the policyholder’s age, health, and lifestyle. The younger and healthier the policyholder, the lower the premium amount.
Cash value life insurance policies offer an additional benefit of accumulating cash value over time.
The policyholder can borrow against the cash value or withdraw it entirely. However, policy loans and withdrawals can reduce the death benefit and increase the premiums.
Policy Loans and Withdrawals
Policy loans and withdrawals are options available to policyholders with cash value life insurance policies.
A policy loan is a loan taken out against the cash value of the policy, which must be paid back with interest.
Meanwhile, a policy withdrawal is a withdrawal of a portion of the cash value, which reduces the death benefit.
It is essential to understand the terms and conditions of policy loans and withdrawals before taking them out.
The interest rates on policy loans can be higher than other types of loans, and withdrawals can reduce the death benefit and increase premiums.
Frequently Asked Questions
What are the key advantages of choosing life insurance with living benefits?
Life insurance with living benefits offers additional financial security to policyholders while they are still alive.
The key benefits of living benefits include access to cash value, which can be used for various financial needs such as paying off debts, covering medical expenses, or supplementing retirement income.
Additionally, living benefits can provide critical illness coverage, which can be used to cover medical expenses in the event of a serious illness, and long-term care coverage, which can help cover the cost of nursing home care or home health care.
How do living benefits in a life insurance policy work?
Living benefits in a life insurance policy work by allowing policyholders to access a portion of their policy’s death benefit while they are still alive.
This is typically done through a rider that is added to the policy at the time of purchase.
The amount of the living benefit that can be accessed will depend on the specific terms of the policy, but it is typically a percentage of the policy’s death benefit.
The living benefit can be used for a variety of financial needs, including medical expenses, debt repayment, or supplementing retirement income.
Who typically benefits the most from incorporating living benefits into their life insurance policy?
Living benefits can be beneficial for anyone who wants to have additional financial security while they are still alive.
However, they may be particularly beneficial for those who are at higher risk of developing a serious illness or who have a family history of such illnesses.
Additionally, those who have significant debt or who are concerned about the cost of long-term care may also benefit from incorporating living benefits into their life insurance policy.
What are the pros and cons of opting for life insurance with living benefits?
The pros of opting for life insurance with living benefits include additional financial security while the policyholder is still alive, access to cash value, critical illness coverage, and long-term care coverage.
Meanwhile, the cons include a higher premium, as living benefits typically increase the cost of the policy, and the fact that accessing the living benefit will reduce the policy’s death benefit.
In what ways is life insurance with living benefits considered more than just a death benefit?
Life insurance with living benefits is considered more than just a death benefit because it provides additional financial security to policyholders while they are still alive.
This can include access to cash value, critical illness coverage, and long-term care coverage.
Additionally, the living benefit can be used for a variety of financial needs, including medical expenses, debt repayment, or supplementing retirement income.
How does the cash value feature in life insurance with living benefits compare to other financial instruments?
The cash value feature in life insurance with living benefits can be a valuable tool for policyholders who want to have access to additional funds for various financial needs.
However, it is important to note that the cash value feature in life insurance with living benefits may not offer the same benefits as other financial instruments, such as a 401(k) or IRA.
Policyholders should carefully consider their financial goals and needs before deciding whether to incorporate living benefits into their life insurance policy.