Life insurance can provide financial security for your loved ones in the event of your untimely death. However, what if you could also receive financial benefits while you’re still alive?
This is where term life insurance with living benefits comes in. Unlike traditional term life insurance policies that only pay out a death benefit, term policies with living benefits allow policyholders to access a portion of the death benefit while they’re still alive under certain circumstances. These benefits are provided through term policy riders, which are optional add-ons to a term life insurance policy that provide additional protection against a variety of risks.
In this article, we’ll discuss the top 5 term policy riders you need to know in order to fully understand the benefits of term life insurance with living benefits.
Term Life Insurance with Living Benefits
Term life insurance with living benefits is a type of life insurance policy that provides financial benefits to the policyholder while they are still alive, in addition to a death benefit for their beneficiaries in the event of their death. This is achieved through the use of optional riders that can be added to a term life insurance policy, which allows the policyholder to access a portion of the death benefit early if they experience a qualifying event such as a critical illness or chronic condition.
These riders can provide financial protection against a variety of risks and can be a valuable addition to a term life insurance policy for those who want to secure their financial future both during and after their lifetime.
Living benefits defined
Living benefits, as used with life insurance, refer to benefits that can be accessed by the policyholder while they are still alive rather than only being available to their beneficiaries after their death. These benefits can include the ability to access a portion of the death benefit early if the policyholder experiences a qualifying event, such as a critical illness, chronic condition, or disability.
Living benefits are typically offered through optional riders that can be added to a life insurance policy and can provide financial security and peace of mind for the policyholder and their loved ones. By providing access to benefits while the policyholder is still alive, living benefits can help address financial concerns and provide support during times of unexpected hardship.
Most common types of living benefits
To address the fundamental limitation that most life insurance policies have (in that they only provide financial security to one’s beneficiaries after the insured has died), many life insurance companies offer optional riders that can be added to a policy to provide living benefits. These riders allow policyholders to access a portion of the death benefit early if they experience a qualifying event, such as a critical or chronic illness, disability, or the need for long-term care.
insurance policies and how they can help provide financial security and peace of mind for policyholders and their families. Outline below are the five most common living benefit riders you’ll likely encounter.
- Accelerated death benefit (ADB) Rider:
An Accelerated Death Benefit (ADB) Rider is an optional rider that can be added to a life insurance policy to provide living benefits. This rider allows the policyholder to receive a portion of the death benefit while they are still alive if they are diagnosed with a terminal illness or have a life expectancy of less than 12-24 months. The policyholder can use these funds to pay for medical bills, long-term care, or other expenses.
The amount of the accelerated death benefit that can be accessed varies by insurer and policy but typically ranges from 25% to 100% of the death benefit. By providing access to funds while the policyholder is still alive, the ADB rider can help alleviate financial stress and provide support during a difficult time. It is important to note that accessing the ADB rider will reduce the death benefit paid to beneficiaries upon the policyholder’s death.
- Critical Illness (CI) Rider:
A Critical Illness (CI) Rider is an optional rider that can be added to a life insurance policy to provide living benefits. This rider provides a lump sum payment to the policyholder if they are diagnosed with a critical illness, such as cancer, heart attack, or stroke. The funds can be used to cover medical expenses, lost income, or other financial obligations.
The specific illnesses covered by the rider will vary by insurer and policy but typically include major illnesses that have a significant impact on the policyholder’s health and ability to work.
The amount of the payment is based on the severity of the illness and the amount of coverage purchased. The CI rider provides financial support during a difficult time, allowing the policyholder to focus on their recovery without the added stress of financial concerns. It is important to note that accessing the CI rider will reduce the death benefit paid to beneficiaries upon the policyholder’s death.
- Chronic Illness (CI) Rider:
A Chronic Illness (CI) Rider is an optional rider that can be added to a life insurance policy to provide living benefits. This rider provides a lump sum payment to the policyholder if they are unable to perform two or more activities of daily living (ADLs) or if they require substantial assistance due to a chronic illness. ADLs include tasks such as eating, bathing, dressing, toileting, and transferring. The funds can be used to cover medical expenses, long-term care, or other financial obligations.
The specific illnesses covered by the rider will vary by insurer and policy but typically include chronic conditions such as Alzheimer’s disease, multiple sclerosis, and Parkinson’s disease. The amount of the payment is based on the severity of the illness and the amount of coverage purchased. The CI rider provides financial support during a difficult time, allowing the policyholder to maintain their quality of life and dignity. It is important to note that accessing the CI rider will reduce the death benefit paid to beneficiaries upon the policyholder’s death.
- Disability Income (DI) Rider:
A Disability Income (DI) Rider is an optional rider that can be added to a life insurance policy to provide living benefits. This rider provides a monthly income to the policyholder if they become disabled and are unable to work due to an injury or illness. The income is designed to replace lost income and help cover ongoing expenses, such as mortgage payments, utilities, and other bills.
The specific definition of disability and the amount of the monthly payment will vary by insurer and policy, but typically, the policyholder must be unable to perform their own occupation or any occupation for which they are reasonably qualified. The amount of the monthly payment is based on the policyholder’s income and the amount of coverage purchased.
The DI rider provides financial support during a difficult time, allowing the policyholder to maintain their lifestyle and financial independence. It is important to note that accessing the DI rider will reduce the death benefit paid to beneficiaries upon the policyholder’s death.
- Long-Term Care (LTC) Rider:
A Long-Term Care (LTC) Rider is an optional rider that can be added to a life insurance policy to provide living benefits. This rider provides coverage for long-term care services, such as home health care, adult daycare, and nursing home care, if the policyholder becomes unable to perform two or more activities of daily living (ADLs) or requires substantial assistance due to a chronic illness. ADLs include tasks such as eating, bathing, dressing, toileting, and transferring.
The LTC rider can provide a daily or monthly benefit to cover the cost of these services. The amount of the benefit, the length of time the benefit will be paid, and the elimination period (waiting period) will vary by insurer and policy. The LTC rider provides financial support during a difficult time, allowing the policyholder to receive the care they need without depleting their savings or burdening their loved ones. It is important to note that accessing the LTC rider will reduce the death benefit paid to beneficiaries upon the policyholder’s death.
Premium Costs Associated with Living Benefits
Term life insurance is affordable because most policyholders outlive their coverage term, resulting in only a small percentage of policies paying out. By adding living benefits riders to a term life policy, policyholders can increase their chances of receiving a payout from the insurer, but this also means higher premiums. The cost of premiums is dependent on the specific rider and the likelihood of it being triggered, as evaluated by the insurance company during the underwriting process.
If an applicant has a medical or family history that suggests a living benefits rider is likely to be triggered, they may face higher premiums or be ineligible for that rider. Additionally, living benefits riders are more likely to be triggered by older applicants, as the chances of being diagnosed with a major health problem increase with age.
Many life insurance companies now offer living benefits riders as part of their standard term policies. Some insurers include terminal illness riders at no extra cost. It may be cheaper for some applicants to find an insurer that includes their desired living benefits rider in every policy instead of purchasing it as an add-on from an insurer that charges extra. It’s important to carefully consider the riders you need and speak with your insurance agent about your options to ensure you choose the right policy for your needs.
Final thoughts…
Term life insurance with living benefits and riders can provide essential financial protection for you and your loved ones during difficult times. These riders offer living benefits that can be used to cover expenses and maintain your financial independence in the event of a serious illness or disability. While choosing to purchase one may not be right for everyone, in our opinion, these options should, at the very least, be considered.
Frequently ask questions:
What are living benefit riders for life insurance?
Living benefit riders are optional policy add-ons that can provide policyholders with financial support in the event of a serious medical condition, disability, or long-term care need.
How do living benefit riders work?
Living benefit riders allow policyholders to access a portion of their death benefit while they are still alive to pay for expenses related to a qualifying event, such as a terminal illness, critical illness, chronic illness, disability, or long-term care need.
Do I have to pay extra for living benefit riders?
Yes, living benefit riders typically come with an additional cost that is added to your premium.
How do I know which living benefit riders are right for me?
The living benefit riders that are right for you will depend on your personal circumstances and needs. Consider your health history, family medical history, and financial situation when deciding which riders to add to your policy.
Can I add a living benefit rider to my existing life insurance policy?
It depends on the specific policy and insurance company. You may be able to add a living benefit rider to your existing policy through a process called policy endorsement.
Are there any restrictions or limitations on living benefit riders?
Yes, living benefit riders have specific terms and conditions that must be met in order to qualify for benefits. For example, a critical illness rider may only cover specific illnesses or require a certain level of severity to be met before benefits are paid out.
Can I use the benefits from living benefit riders for any purpose?
No, the benefits from living benefit riders are typically intended to cover expenses related to the qualifying event only, such as medical bills, long-term care expenses, or disability-related costs.
Do living benefit riders affect the death benefit of my policy?
Yes, accessing the benefits from living benefit riders will reduce the death benefit of your policy.
How do I file a claim for living benefit rider benefits?
The process for filing a claim will depend on the specific insurance company and living benefit rider. Typically, you will need to provide proof of the qualifying event and related expenses.
Can I cancel a living benefit rider at any time?
Yes, you may be able to cancel a living benefit rider at any time, although you should be aware of any potential penalties or fees for doing so. It’s important to review the terms of your policy before making any changes.
