Life Insurance With Living Benefits

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Definition: What is Life Insurance with Living Benefits?

In financial planning, life insurance with living benefits is a game changer. It’s essentially a life insurance policy that offers a broad spectrum of benefits to policyholders while they are still alive. With this form of living benefits life insurance, you can tap into your policy for funds if you face specific circumstances such as a severe illness or chronic disease or need long-term care.

Understanding the Living Benefits of Life Insurance

Let’s delve into the critical living benefits of life insurance:

Chronic Illness Benefit

This benefit is activated if you cannot perform at least two daily activities like eating, bathing, or dressing for at least 90 days. This provision can significantly alleviate the financial burden that a chronic illness may impose. For example, Mike, a policyholder, developed a chronic condition and could not continue his regular job. His living benefit life insurance policy provided the financial support he needed to manage his daily needs and medical care.

Critical Illness Benefit

If you’re diagnosed with a critical illness like heart attack, stroke, or cancer, this benefit comes into play. It allows you to receive a lump sum payout as you see fit. Imagine Sarah, diagnosed with a critical illness. Her life insurance with a living benefits policy helped her cover her medical costs and allowed her to fulfill her dream trip to Italy.

Terminal Illness Benefit

This benefit provides financial support if you’re diagnosed with a terminal illness, meaning you have less than 12 months to live. This benefit could provide the means to seek alternative treatments or fulfill end-of-life wishes.

Life Insurance With Living Benefits

Types of Life Insurance Policies

  • Term Life Insurance: A policy that provides coverage for a specific term, usually 10, 20, or 30 years. It’s straightforward and often more affordable but doesn’t typically include living benefits unless added as a rider.
  • Whole Life Insurance: A type of permanent insurance that offers both a death benefit and a cash value component. It lasts for the policyholder’s entire life and often includes living benefits.
  • Universal Life Insurance: Another form of permanent insurance, Universal policies, offer flexible premiums and a savings element that can grow tax-deferred. Living benefits can be integrated, depending on the policy’s structure.

Who Should Consider This Policy?

Individuals with a family history of chronic or critical illnesses might find these policies particularly beneficial. Additionally, those who lack a comprehensive health insurance plan or financial buffer for medical emergencies should consider this added protection.

Related Reading: Easily compare life insurance quotes from top providers to find the best rates.

Life Insurance With Living Benefits

Why Opt for Life Insurance with Living Benefits?

The primary reason is the financial security it offers during life’s unpredictabilities. While traditional life insurance serves beneficiaries after the policyholder’s death, living benefits ensure that the policyholder also gets assistance when facing significant health challenges.

How Does One Claim Living Benefits?

Upon being diagnosed with a qualifying illness, policyholders should contact their insurance provider. After submitting the necessary medical documentation and undergoing a review, if approved, they can access a portion of their death benefit.

Pros And Cons Of Living Benefits Of Life Insurance

ProsExplanationConsExplanation
Financial ReliefIf diagnosed with a qualifying illness, you can access funds to cover medical bills, caregiving expenses, or any other financial needs.Policies with living benefits can be more expensive.The added benefits come with a higher premium compared to standard policies.
FlexibilityAllows policyholders to use their benefits as they see fit, providing a safety net during challenging times.Reduction in Death BenefitAny amount used as a living benefit will reduce the death benefit your beneficiaries receive.
Peace of MindKnowing that you have a plan in place, not just for after you’re gone but also if you face a severe health challenge, can offer immense peace of mind.Eligibility RestrictionsNot all illnesses may qualify, and there might be waiting periods before you can access these benefits.

This table provides a clear breakdown of the advantages and disadvantages, along with their respective explanations, for a comprehensive understanding.

Next Steps

Life insurance with living benefits redefines the traditional concept of life insurance. It’s not just about providing for loved ones after you’re gone; it’s also about ensuring you have financial support when faced with life-altering health challenges. While there are undeniable pros, it’s essential to weigh the cons and consult with a financial advisor to determine if this policy aligns with your needs. Remember, the right insurance plan can make all the difference, both in life and death.

Life Insurance With Living Benefits Quotes

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Frequently Asked Questions

What type of life insurance has living benefits?

Consider permanent policies if you are looking for a life insurance policy with financial advantages that can still be accessed during your lifetime. These will provide tax-advantaged, cash-value benefits to assist in funding your retirement and additional living benefits.

What are the three main types of life insurance?

Here are the three main types that may provide just what you need: Fully underwritten life insurance, simplified issue life insurance, and guaranteed issue life insurance. With these comprehensive plans, you can have complete peace of mind knowing your family is protected no matter what happens.

What is the cost of living insurance?

A cost-of-living rider for life insurance offers an excellent way to stay ahead of inflation. By including this feature in your policy, you can ensure that when the time comes, your beneficiaries will benefit from a more considerable death benefit than initially planned. This means they’ll be able to maximize the amount they receive while still having access to adequate coverage.

What are the four main types of life insurance?

When it comes to selecting the best life insurance for yourself and your family, there are four main types of policies you can consider: Term Life Insurance, Whole Life (Permanent) Insurance, Universal Life (Permanent) Insurance, and Variable Life (Permanent) Insurance. In addition, many people also opt for Final Expense Policies, which provide a more permanent form of coverage.

What is the difference between a living benefit and a death benefit annuity?

If you’re considering an annuity, it’s essential to understand the distinction between a living benefit and a death benefit rider. A living benefit guarantees that the annuitant will receive payouts regardless of when they pass away. In contrast, with a death benefit, beneficiaries are shielded from losing out on any money if there is a decline in value. However, not all riders offer the same features, so investigate thoroughly before making your decision, as this may affect whether or not you deem them worthwhile for your particular situation.

Does life insurance benefit count as income?

Generally, the response is no. For example, suppose you’re a beneficiary of someone who had taken out a policy and passed away. In that case, their life insurance benefits will likely not count toward your gross income and need not be reported. However, any interest earned on those payments should still be declared as taxable interest received.

What does life insurance with living benefits mean?

By owning a life insurance policy, you can accumulate cash value throughout your lifetime. This is referred to as a “living benefit” because you can access the money while still alive – unlike death benefits which only pay out after passing away. Thus, you have financial protection for yourself and your family if anything happens and extra monetary resources that can be utilized during your lifetime!

*Disclosure: Some of the links in this guide may be affiliate links. I may receive a commission at no cost to you if you purchase a policy. It helps us keep the lights on!

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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