Living Benefits With Life Insurance

Often perceived as a one-way benefit, life insurance is typically thought to only serve loved ones after the policyholder's passing. However, the concept of living benefits in life insurance introduces a dynamic shift, transforming the policy into a resource during the policyholder's lifetime.

What is the Difference Between a Living Benefit and a Death Benefit?

A death benefit represents the traditional payout in a life insurance policy. When the policyholder dies, the death benefits are paid out to the beneficiary (or beneficiaries) of the policy.

For example, a $500,000 life insurance policy means the policy includes a face value, or death benefits, of $500,000 that will be paid out upon the death of the insured.

A living benefit represents money or other benefits that may be utilized by the policyholder while they are still alive.

What is Considered to be a Living Benefit in a Life Insurance Policy?

Living benefits in a life insurance policy are provisions that allow the policyholder to utilize a portion of the death benefit under certain circumstances while still alive.

These benefits offer financial aid during critical health events, challenging the traditional view of life insurance as solely a post-death benefit.

Types of Living Benefits in Life Insurance

There are several examples of life insurance benefits that can be classified as “living benefits,” including:

• Accelerated death benefits
• Long-term care or disability benefits
• Return of premiums
• Disability waiver of premium
• Cash value withdrawal or policy loans
• Policy surrender

Accelerated Death Benefits

This feature enables policyholders with a terminal or critical illness diagnosis to access part of their death benefit early, providing much-needed funds for medical expenses and other costs.

Long-Term Care or Disability Benefits

These benefits offer financial support for long-term care needs, such as nursing home costs, in the event of a chronic illness or disability.

Return of Premiums

Unique to certain term life insurance policies, this benefit returns the premiums paid if the policyholder outlives the policy term, offering a form of financial return on the insurance investment.

Disability Waiver of Premium

If a policyholder becomes unable to work due to a disability, this benefit waives the requirement to continue premium payments while keeping the policy active.

Cash Value Withdrawal and Policy Loans

For policies with a cash value component, policyholders can withdraw funds or take out loans against the policy's value, providing financial flexibility during the policy's term.

Policy Surrender Option

Policyholders can choose to surrender their policy for its accumulated cash value, offering an exit strategy that converts the policy into immediate financial resources.

The Cost-Value Analysis of Living Benefits

Incorporating living benefits into a life insurance policy often impacts the cost, potentially increasing premiums or reducing the final death benefit. The value of these benefits lies in their ability to provide financial support during unforeseen life events, effectively serving as a living safety net.

Living Benefits' Role in Financial Planning

Living benefits play a significant role in comprehensive financial planning. They offer a proactive solution for managing financial risks associated with health crises, enabling policyholders to utilize their life insurance as an active financial tool rather than a dormant asset.

Comparing Policies With and Without Living Benefits

Living benefits in life insurance redefine the traditional understanding of these policies. They transform life insurance from a solely future-focused asset into a versatile tool that can address immediate financial needs during critical life events.

Deciding to purchase a life insurance policy with or without living benefits requires an understanding of the needs and objectives behind your coverage. Speak to a licensed life insurance agent about policies with living benefits and discuss how they may be of benefit to you.