What are living benefits

What Is Life Insurance with Living Benefits?

At its core, life insurance is designed to provide financial protection to your loved ones in the event of your death. Traditional life insurance coverage offers a death benefit to beneficiaries when the insured individual passes away. However, as the needs and demands of consumers have evolved, so have life insurance products. One such advancement in life insurance coverage is the inclusion of “living benefits.”

What Are Living Benefits?

Living benefit riders are add-ons to a life insurance policy that benefits a policyholder while they are still alive. These riders offer an added layer of financial protection by allowing policyholders to access funds during challenging times, such as facing a severe illness. These conditions generally revolve around significant life events or health issues.

Living Benefits Riders can be added to permanent life insurance policies such as whole life insurance or universal life insurance. Depending upon the life insurance company, it may also be added to a term life insurance policy.

What Is a Living Benefit Rider?

A living benefit rider is an add-on or provision to a life insurance policy that allows the policyholder to access a portion of the policy’s death benefit. At the same time, they are still alive under specific circumstances. Unlike the base policy, which pays out upon the insured’s death, living benefit riders provide financial support in severe illness, disability, or other predefined conditions.

What Is the Difference Between a Life Insurance Living Benefit and a Death Benefit?

While both the death benefit and living benefits aim to provide financial protection, they cater to different needs and circumstances. The death benefit focuses on supporting beneficiaries after the insured’s death, while living benefits provide financial assistance to the policyholder during their lifetime in the face of specific challenges.

What Are The Types of Living Benefit Riders?

Traditional Living Benefit Riders

These riders provide access to the life insurance policy’s death benefits while still alive, enhancing financial security and flexibility, making life insurance a versatile tool for financial planning and after-death support for beneficiaries. Common types include:

• Accelerated Death Benefit Riders (Also Known as Terminal Illness Riders): Suppose the policyholder is diagnosed with a terminal illness and has a limited life time (e.g., 12 months or less). In that case, the accelerated death benefits rider lets them access a significant portion or even all of their death benefit in advance.
• Critical Illness Riders: The critical illness rider allows the policyholder to receive a lump-sum payment if diagnosed with one of the specified critical illnesses covered under the policy.
• Chronic Illness Riders: Suppose the policyholder cannot perform a certain number of Activities of Daily Living (ADLs) due to a chronic illness. In that case, the chronic illness rider allows them to access part of the death benefit.
• Long-Term Care (LTC) Riders: The long-term care rider provides a monthly benefit if the insured needs long-term care due to a chronic illness or cognitive impairment. Typically, the policyholder must be unable to perform two or more ADLs.

Non-Traditional Living Benefits Riders

Over time, as consumer needs evolved and the insurance industry adapted, non-traditional living benefits riders emerged. These riders have been introduced to address modern-day challenges and offer policyholders more options and flexibility. Here are some types of non-traditional living benefits riders:

• Return of Premium Riders: If the policyholder outlives the term of their term life insurance, the return of premium rider ensures that all or part of the premiums paid are returned to the policyholder. This can appeal to those who want the assurance of getting their money back if the policy is never used.
• Waiver of Premium Riders: A waiver of premium rider is designed to provide financial protection if the policyholder becomes seriously ill or disabled and can no longer afford the insurance premiums. The insurance company will either cover the premiums or waive them.
• Guaranteed Insurability Riders: The guaranteed insurability rider allows the policyholder to purchase additional coverage at specific intervals without proving insurability. Useful for those who anticipate needing more coverage in the future, especially valuable for younger policyholders whose needs might increase with life events like marriage or childbirth.
• Child Term Riders: The child term rider provides a death benefit if a child of the insured passes away. Offering financial relief during the painful event of a child’s passing, covering funeral expenses, and allowing time off work.
• Cost of Living Adjustment Riders: The cost of living adjustment rider helps to ensure that the policy’s benefits are protected from inflation so that the death benefit remains in line with the rising living costs.

• Disability Income Riders: if the policyholder becomes disabled and cannot work, the Disability Income Rider provides a monthly income for a specified period. The definition of disability varies by policy but usually means the insured cannot work in their own occupation or any occupation.
• Home Healthcare Riders: Rather than focusing on nursing homes or assisted living facilities, the Home Healthcare Rider provides benefits if the insured requires home healthcare services. Allows individuals to receive care in the comfort of their own homes.
• Divorce Protection Riders: In case of a divorce, the Divorce Protection Rider allows for changes in policy ownership or beneficiary designations without needing the consent of the originally named policy owner or beneficiary. Offers flexibility and avoids potential legal complications in the event of marital separation.
• Unemployment Protection Riders: If the policyholder becomes involuntarily unemployed, this rider waives the premiums for a specified period. Ensures the policy doesn’t lapse during periods of financial hardship due to unemployment.

It is essential to understand the terms and conditions of each rider. The cost, benefit amount, duration, and specific triggers vary widely among insurance providers. Additionally, using a rider might reduce the final death benefit available to beneficiaries. It’s always a good idea to consult with an insurance agent or financial advisor to ensure a clear understanding and make the most informed decisions.