Living benefit riders let you tap into part of your life insurance while youāre still alive if you face a serious health challenge. Whether itās a critical illness, chronic condition, or terminal diagnosis, these riders can help cover costs and give you flexibility when you need it mostāgoing beyond what traditional life insurance usually offers. In this guide, weāll break down how living benefits work, the different types of riders available, and how to decide if adding one to your policy makes sense for you and your family.
Use While Living
Coverage Types
Typical Cost
Benefit Amount
What Are Living Benefits?
Understanding Living Benefits
Living benefits, also called accelerated death benefits or living benefit riders, allow policyholders to access a portion of their life insurance death benefit while still alive if they meet specific qualifying conditions. These riders transform traditional life insurance from solely death protection into a comprehensive safety net for major health events.
Traditional life insurance only pays out when the insured person dies. But what if you need financial help during a health crisis? Living benefits bridge this gap by letting you withdraw funds from your policy’s death benefit to cover medical expenses, lost income, home modifications, or other costs related to serious illness or injury.
Key Concept
When you use living benefits, the amount you receive is deducted from your policy’s death benefit. This means your beneficiaries will receive less (or nothing) when you pass away, but you gain crucial financial support when you need it most.
Top 5 Living Benefit Riders You Need to Know
š Top 5 Living Benefit Riders for Term Life Insurance
| Rank | Rider Type | Typical Availability | Qualifying Conditions | Typical Benefit | Best For |
|---|---|---|---|---|---|
| š„ 1 | Accelerated Death Benefit | Often included free | Terminal illness (6-24 months) | 25-100% of the death benefit | Everyone – essential protection |
| š„ 2 | Critical Illness Rider | Additional cost | Heart attack, stroke, cancer, organ transplant | 25-100% of the death benefit | Those with a family health history |
| š„ 3 | Chronic Illness Rider | Sometimes included free | Unable to perform 2+ ADLs for 90+ days | 2-4% monthly, capped total | Long-term care concerns |
| 4 | Disability Income Rider | Additional cost | Total disability preventing work | Monthly income payments | Primary breadwinners |
| 5 | Waiver of Premium | Additional cost (low) | Total disability (varies by insurer) | Premiums waived during disability | Budget-conscious buyers |
Availability and specific terms vary by insurance company and policy. Always review the specific rider definitions and limitations in your policy documents.
1. Accelerated Death Benefit (ADB)
What it is: The accelerated death benefit allows you to access a portion of your death benefit if you’re diagnosed with a terminal illness and have a limited life expectancy (typically 6 to 24 months, depending on the insurer).
How it works: If your doctor certifies that you have a terminal condition, you can request an advance on your death benefit. Most insurers allow you to access 25% to 100% of your policy’s face value. The amount you receive is deducted from what your beneficiaries will eventually receive.
Cost: Many insurers include this rider at no additional cost as a standard feature.
Best for: Everyone should have this rider. It provides essential financial support during end-of-life care when medical expenses are highest and you may be unable to work.
2. Critical Illness Rider
What it is: This rider provides a lump sum payment if you’re diagnosed with a covered critical illness, such as a heart attack, stroke, cancer, kidney failure, or need an organ transplant.
How it works: Upon diagnosis of a qualifying critical illness, you receive a percentage of your death benefit (typically 25% to 100%, depending on the policy and illness). The specific illnesses covered and definitions vary by insurer, so review policy details carefully.
Cost: This rider typically costs extra, with premiums varying based on age, coverage amount, and health status.
Best for: Individuals with family history of heart disease, cancer, or stroke, or those concerned about the financial impact of major illnesses.
3. Chronic Illness Rider
What it is: The chronic illness rider pays benefits if you become chronically ill and cannot perform two or more Activities of Daily Living (ADLs) for an extended period, typically 90 days or longer. ADLs include bathing, dressing, eating, toileting, transferring, and continence.
How it works: Unlike critical illness riders that pay a lump sum, chronic illness riders typically pay monthly benefits (usually 2-4% of the death benefit per month) to help cover long-term care costs, home modifications, or caregiver expenses.
Cost: Some insurers include this at no extra cost; others charge additional premiums.
Best for: Those concerned about long-term care costs or lacking separate long-term care insurance.
4. Disability Income Rider
What it is: This rider provides monthly income payments if you become totally disabled and unable to work due to illness or injury.
How it works: After a waiting period (elimination period), the rider pays a predetermined monthly benefit to replace lost income. The payments continue for a specified period or until you can return to work. This differs from a waiver of premium, which only covers your insurance premiums.
Cost: Adds to your premium, with costs based on your occupation, age, and benefit amount.
Best for: Primary income earners, especially those without separate disability insurance or with high-risk occupations.
5. Waiver of Premium Rider
What it is: The waiver of premium rider ensures your life insurance policy remains in force without requiring premium payments if you become totally disabled.
How it works: If you meet the rider’s definition of total disability (usually unable to perform the duties of your occupation), the insurance company waives your premium payments for the duration of your disability or until the policy term ends. Your coverage continues as if you were still paying premiums.
Cost: Relatively affordable, typically adding only a small percentage to your premium.
Best for: Anyone concerned about maintaining life insurance coverage if they become unable to work and pay premiums.
Living Benefits Comparison
š Quick Reference: Living Benefit Riders Side-by-Side
| Feature | Accelerated Death | Critical Illness | Chronic Illness | Disability Income | Waiver Premium |
|---|---|---|---|---|---|
| Trigger Event | Terminal diagnosis | Major illness diagnosis | Cannot perform ADLs | Total disability | Total disability |
| Payout Type | Lump sum | Lump sum | Monthly payments | Monthly income | Premium coverage |
| Typical Cost | Often free | Extra premium | Varies (sometimes free) | Extra premium | Low extra cost |
| Reduces Death Benefit | Yes | Yes | Yes | Sometimes | No |
| Best Use Case | End-of-life expenses | Treatment costs | Long-term care | Income replacement | Keep policy active |
Specific terms, conditions, and costs vary significantly by insurance company. Always review actual policy documents for precise details.
How Living Benefits Work
The Living Benefits Process
Understanding how to access your living benefits ensures you can get help quickly when facing a health crisis. The process typically involves diagnosis, documentation, claim filing, and approval.
Step 1: Qualifying Event
You experience a health event that meets your rider’s specific criteria (terminal illness, critical illness diagnosis, chronic condition, or disability).
Step 2: Medical Documentation
Your physician provides documentation proving you meet the rider’s definition of the qualifying condition.
Step 3: File Claim
You or your representative submits a claim to your insurance company with required medical records and claim forms.
Step 4: Receive Benefits
Upon approval, you receive your benefit payment (lump sum or monthly), minus any applicable fees or reductions.
Important Considerations
- Death Benefit Reduction: Most living benefits reduce the death benefit by the amount you receive, plus potential interest charges
- Survival Period: Some riders require you to survive a certain period after diagnosis (often 14-30 days)
- Benefit Limits: There may be maximum amounts you can access, often 50-90% of the total death benefit
- Tax Implications: Living benefits are typically tax-free, but consult a tax professional for your specific situation
Cost of Living Benefit Riders
Affordable Protection Enhancement
Living benefit riders are generally affordable additions to term life insurance. Some are included at no extra cost, while others add modest premiums based on your age, health, coverage amount, and the specific benefits provided.
ā Typically Free or Low Cost
- Accelerated Death Benefit (Terminal Illness)
- Chronic Illness Rider (some companies)
- May already be included in your policy
š° Additional Premium Riders
- Critical Illness Rider
- Disability Income Rider
- Waiver of Premium Rider
š Cost Factors
- Your current age and health
- Amount of coverage
- Specific rider benefits and limits
- Insurance company pricing
Cost-Benefit Perspective
While exact costs vary by insurer and individual factors, living benefit riders typically add modest amounts to your premiumāoften less than you’d pay for separate critical illness or disability insurance. The potential financial protection during health crises often far exceeds the small additional cost.
Best Companies for Living Benefits
Top-Rated Insurers for Living Benefit Riders
Many major life insurance companies offer comprehensive living benefit riders. The best choice depends on which specific riders you need, their cost, and the company’s financial strength and claims-paying history.
Mutual of Omaha
Financial Rating: A+ (Superior)
Highlights: Offers comprehensive living benefit options including accelerated death, critical illness, and chronic illness riders with competitive terms.
Banner Life
Financial Rating: A+ (Superior)
Highlights: Strong living benefits package with accelerated death benefit included and additional chronic illness rider options available.
Pacific Life
Financial Rating: A+ (Superior)
Highlights: Excellent living benefit riders with flexible acceleration options and clear qualifying conditions.
Principal Financial
Financial Rating: A+ (Superior)
Highlights: Comprehensive rider offerings with competitive pricing and a strong customer service reputation.
Lincoln Financial
Financial Rating: A+ (Superior)
Highlights: Multiple living benefit options with clear policy language and efficient claims processing.
Protective Life
Financial Rating: A+ (Superior)
Highlights: Strong accelerated benefit provisions and optional critical illness coverage at competitive rates.
Note: Company offerings and terms change over time. Always verify current living benefit riders, costs, and conditions directly with insurers or through a licensed agent.
Who Needs Living Benefits?
Ideal Candidates for Living Benefits
- Limited emergency savings: No substantial cushion for medical emergencies
- Primary breadwinners: Family depends on your income
- Family health history: Genetic predisposition to critical illnesses
- Self-employed individuals: No employer disability benefits
- High-deductible health plans: Large out-of-pocket medical costs
- No separate coverage: Lacking disability or critical illness insurance
May Have Less Need
- Substantial emergency fund: 12+ months of expenses saved
- Comprehensive coverage elsewhere: Excellent disability and critical illness policies
- Strong employer benefits: Long-term disability and critical illness coverage at work
- High net worth: Can self-insure against health crises
- Near retirement: Medicare and retirement savings will cover needs
Universal Recommendation
At a minimum, everyone with term life insurance should ensure they have an Accelerated Death Benefit rider for terminal illnessāit’s typically free and provides crucial support during end-of-life care. Additional riders depend on your specific financial situation, health history, and existing coverage.
Pros and Cons of Living Benefits
ā Advantages
- Financial flexibility: Access funds when you need them most
- Maintain dignity: Pay for quality care and treatment options
- Reduce financial stress: Focus on recovery, not bills
- Often affordable: Many riders are included or low-cost
- Tax advantages: Benefits are typically received tax-free
- No separate policy needed: Integrated into existing coverage
- Supplement other insurance: Fills gaps in health/disability coverage
ā Disadvantages
- Reduces death benefit: Less money for beneficiaries
- Strict qualifying criteria: Must meet specific definitions
- Potential costs: Some riders increase premiums
- Complexity: Terms and conditions can be confusing
- Waiting periods: May need to survive a certain period after diagnosis
- Limited payouts: May only access a portion of the death benefit
- Policy variation: Benefits differ significantly by insurer
FAQ: Living Benefits
What are living benefits in life insurance?
Living benefits are policy riders that allow you to access a portion of your life insurance death benefit while you’re still alive if you meet certain qualifying conditions, such as terminal illness, critical illness, chronic illness, or disability.
These benefits transform traditional death-only life insurance into more comprehensive protection that can help during major health crises, providing financial support when you need it most.
Do living benefits reduce my death benefit?
Yes, most living benefits reduce your policy’s death benefit by the amount you receive, plus any applicable fees or interest charges. Your beneficiaries will receive the remaining death benefit when you pass away.
The exception is the waiver of premium rider, which doesn’t reduce your death benefitāit simply ensures your policy stays active without premium payments during disability.
How much do living benefit riders cost?
Costs vary significantly by rider type and insurance company. Accelerated death benefits for terminal illness are often included at no extra cost. Other riders, like critical illness or disability income, typically add to your premium based on your age, health, and coverage amount.
The additional cost is usually modest compared to purchasing separate critical illness or disability insurance policies, making riders a cost-effective way to enhance protection.
Are living benefits taxable?
Living benefits are typically received tax-free under current tax law when used for qualified medical expenses or when the insured is terminally or chronically ill. However, tax situations vary, so consult a tax professional for your specific circumstances.
The IRS generally treats accelerated death benefits for terminal or chronic illness the same as regular death benefitsātax-free to the recipient.
Can I add living benefits to my existing term life insurance?
It depends on your insurance company and policy. Some insurers allow you to add certain riders to existing policies, while others only offer them at the time of purchase. Contact your insurance company or agent to explore your options.
If your current policy doesn’t offer the living benefits you want and they can’t be added, you might consider replacing your policy with one that includes comprehensive living benefit riders.
What’s the difference between critical illness insurance and a critical illness rider?
A standalone critical illness insurance policy provides a lump sum payment upon diagnosis of covered conditions and doesn’t affect any other policies. A critical illness rider is attached to your life insurance and pays from your death benefit, reducing what your beneficiaries will receive.
Riders are typically more affordable than standalone policies but provide less flexibility since they’re tied to your life insurance coverage amount and reduce your death benefit.
Which living benefit rider is most important?
The Accelerated Death Benefit (ADB) for terminal illness is the most universally important rider and is often included at no cost. Beyond that, the best riders for you depend on your specific situation, health history, financial resources, and existing coverage.
If you have family history of heart disease, stroke, or cancer, consider a critical illness rider. If concerned about long-term care, a chronic illness rider may be valuable. Primary breadwinners should consider disability income or waiver of premium riders.
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Disclaimer: This information is for educational purposes only and does not constitute financial, legal, tax, or insurance advice. Living benefit riders vary significantly by insurance company, and specific terms, conditions, qualifying criteria, costs, and benefits differ between insurers and policies. The availability of riders, their costs, and exact terms are subject to underwriting approval and state regulations. Tax treatment of living benefits may vary based on individual circumstances. This guide provides general information onlyāactual policy language governs all coverage determinations. Always review specific policy documents and consult with licensed insurance professionals and tax advisors for personalized recommendations based on your unique situation. Not all riders are available in all states or from all insurers.
