Living Benefits With Life Insurance

In this article...
  • Living benefits can help those facing terminal illness or disability. Read to learn how the different types of living benefits can help you plan for the future.

Living benefits with a life insurance policy can help if you become ill or disabled in the future. You may be able to get these benefits as policy add-ons called riders. 

What Are Living Benefits in Life Insurance? 

The term "living benefits" refers to life insurance benefits, including payments, a policyholder can receive before death. There are several kinds of living benefits, and you'll probably need to decide whether to include living benefits when you purchase a policy. You can't add living benefits to a life insurance policy after you need to use them. 

The types of living benefits available depend on whether you have a term life or a permanent policy as well as the policy amount. 

The common types of living benefits are: 

  • Accelerated death benefits
  • Long-term care benefits 
  • Return of premiums
  • Disability waiver of premiums
  • Cash value withdrawal
  • Loans
  • Policy surrender 

Understanding each of these living benefits can help you prepare for the future and get the most out of your life insurance policy. 

Can Life Insurance Be Paid Before Death? 

Both term and permanent life insurance policies may offer accelerated death benefits, sometimes referred to as living death benefits. An insurer may pay a portion of a policy's total value as accelerated death benefits if the policyholder is terminally ill. Policies have varying definitions of a terminal illness. Some pay accelerated benefits only if life expectancy is no more than six months, and others pay with a life expectancy of up to 24 months. 

Accelerated benefits are sometimes available for critical illnesses where the policyholder would die without significant medical intervention. And some policies may include a long-term care or disability benefit that pays a portion of the policy amount if the policyholder requires permanent nursing home care. 

Benefits paid before death will be taken out of the total policy amount, so the amount beneficiaries receive after the policyholder's death will be reduced. Since accelerated benefits don't change the total amount of the insurance payout, many insurers include them at no extra cost. However, lower-value policies, like those meant to cover final expenses, usually don't offer accelerated benefits. 

What Happens If You Live Past Your Life Insurance? 

Term life insurance expires after a certain number of years or after the policyholder reaches a certain age. If you live past the term of your policy, the policy is no longer active, and you usually can't get back any of the premiums you paid. 

However, some policies offer a return of premiums rider as a type of living benefit. With this benefit, the insurer will return the premiums you paid if you live past the policy term. Adding one of these riders can increase your premiums, so you'll want to consider whether it's worth it. 

What Are the Other Types of Living Benefits (With Life Insurance)? 

Another type of living benefit is called a disability waiver of premium. This benefit doesn't pay anything, but it does let you skip your premium payment if you're unable to work for an extended period (usually at least 6 months). Disability waivers can save you from forfeiting your life insurance policy if you're unable to work. 

Finally, permanent life insurance policies with investment-like components may have living benefits associated with their cash value. Some allow for a cash value withdrawal where you can access some of the policy's cash value. And there may be no taxes owed if the amount withdrawn is less than the premiums that have been paid on the policy. You might also be able to take a loan against the cash value of the policy. Although insurers charge interest on these loans, it's usually a lower rate than on other types of loans. 

Permanent life insurance policies may also have a policy surrender benefit. These let the policyholder cancel the life insurance and take any cash value. Policy surrender benefits give you a way to access extra cash during your lifetime if the life insurance policy is no longer wanted.