Living benefits is a group of life insurance contract riders that give the insured an option to access a part of the death benefit* while still alive.
*Death Benefit is the amount of money that the life insurance contract promises to pay when the insured dies.
Living Benefits:
- Critical Care Illness Rider
- Terminal Illness Rider
- Accelerated Death Benefit
- Long-Term Care Rider
All of them share a similar Win-Win trait: If you use the Living Benefit, the amount paid out to you is then deducted from the final Death Benefit amount. If you don’t use the rider, your beneficiaries get the full amount.
If you are planning on getting a life insurance policy, make sure to consider these extremely useful features.
Let’s go over the main features you must know before considering, and then dive into real life examples:
PLAIN LIFE INSURANCE:
Life insurance is a contract between the policyholder and an insurance company. When the insured dies, the insurance pays out a “death benefit” to whoever was listed as a beneficiary in the contract. So, life insurance in its pure form does not benefit the insured. The insured might be able to sleep better at night – knowing that the family is taken care of. But there is no direct benefit to them.
This is when the Living Benefits options come into play.
LIFE INSURANCE with LIVING BENEFITS:
If the Living Benefits option was selected and the insured suffers a critical or terminal illness – they can normally get access to 25% of the policy’s Death Benefit. So, on a $1,000,000 policy the insured could get paid $250,000 while still alive.
Usually, the insured must be terminally ill, with a life expectancy of under two years. This early payout allows the insured to help with the medical costs, pay off mortgage, or use this money in any way they need. Whatever amount gets paid out, is then deducted from the actual Death Benefit, before it is paid out to the beneficiaries.
Long-Term Care (LTC) Rider is a very important Living Benefit that is frequently overlooked. It gives you an option to start using the Death Benefit money to cover the monthly costs of Long-Term Care while you are still alive. LTC rider requires a medical professional to certify that the insured cannot perform at least two activities of daily life.
PRO-TIP: Long-Term Care Insurance and Long Term Care Rider are not the same thing. Due to the high costs of Long-Term Care industry, LTC Insurance by itself can be very expensive. But if you purchase LTC as an add-on option (rider) to a life insurance policy, the cost of the coverage is usually much less.
Here are a few true stories of how Living Benefits got used by Life Insurance policyholders who had Living Benefits riders:
- A client has a small heart attack and uses the Critical Illness Rider payout to take his grandchildren to Disneyland.
- A client is diagnosed with a brain tumor inoperable in US. The client gets a successful surgery in another country – paid in cash, using the Terminal Illness Rider funds.
- An insurance agent buys Critical Illness coverage for himself, then goes to a dermatologist to sell similar coverage. During the sales visit the agent finds out that he himself has a cancerous growth on his own face. He collects the insurance payment, takes care of the cancer, and uses the rest of the money as a down payment for a new home.
- A client has a $500,000 policy with Long Term Care and Critical Illness riders. One day he is working on his roof: has a heart attack, falls off the roof, and breaks his back. Critical Illness rider takes care of the initial bills of the heart surgery and a pacemaker. While the Long Term Care plan takes care of him during 2 years of back surgery and recovery.
- A client survives a heart attack and receives over $340,000 in Living Benefits. Upon realizing how much insurance helps people – the client becomes an insurance agent himself.