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Life Insurance Basics

Living benefits of life insurance

Choosing a life insurance plan with living benefits may provide resources while you’re still alive, potentially giving you an option if you encounter an unexpected financial need.

Having a life insurance policy in place is an important decision for anyone to make. You’ve got to consider your entire life, from your current income to your debt. You also have to worry about your family’s well-being after you’ve passed. But what happens when the unexpected comes at you while you’re still alive? Unexpected illnesses, long-term disabilities, and more can strike without warning and you’ll want to be ready. You’ll want to make sure you have options available just in case. Luckily for you, plenty of life insurance policies with living benefits can provide you with financial assistance while you’re alive, when you need it the most.

What are life insurance living benefits?

The short answer is that life insurance living benefits provide you with access to funds from your policy’s death benefit while you’re still alive. Typically, these benefits are attached to your policy in the form of life insurance riders, which may give you much-needed coverage in the event of chronic or terminal illness, hospice care or general medical care. When attempting to gain access to these funds, be prepared to submit paperwork and medical records to your insurance provider so they can access your eligibility to release the funds.

Some benefits that may be available through a life insurance policy with living benefits

  • You may have access to funding in the event of chronic or terminal illness
  • Some policies will refund your premiums if you outlive your policy
  • In some cases, you’re able to waive premiums if you’re diagnosed with a long-term disability
  • You can often purchase extra coverage without needing to qualify again

Some potential drawbacks of choosing a life insurance policy with living benefits

  • Typically doesn’t grow significantly at the beginning of the policy
  • If utilized, you may reduce your death benefit
  • The amount you’re allowed to receive for illness may be based on how severe the condition is
  • Some of the funds can be taxable depending on the circumstances

What types of life insurance policies provide living benefits?

If you're looking for a life insurance policy that offers living benefits, you're going to want to focus on permanent life insurance plans. It’s usually easier to qualify for term life insurance plans, and you'll be more tempted to enroll in one. Why? Because their premiums are often significantly less expensive and are fairly easy to maintain since they’re only applicable for a predetermined amount of time – usually 5, 10, 20 or 30 years. The biggest drawback is that they don't accrue cash value during the policy's lifespan, meaning that you won't have access to any of the funds while you're alive.

On the other hand, there are permanent life insurance policies. These policies are typically more expensive and you’ll likely have to go through medical examinations, but the benefits that come with it are part of the reason for this. You can add living benefits to these plans, and they have cash value growth potential over time, meaning you may have a few different options to use in case you need funding while you're still alive. Some of these policies are:

Whole life insurance is a permanent life insurance policy that can provide you with coverage for the rest of your life at a higher premium than term life insurance. These policies may allow you to add on certain living benefits while also allowing your plan to accrue cash value that you can withdraw and use when you need to.

Universal life insurance is similar to whole life insurance in that it’s a permanent life insurance policy that means you can be covered for the rest of your life while enjoying a policy with living benefits. The key difference between universal life insurance and whole life insurance is you have a bit more flexibility with your premiums because you’re allowed to use the cash value to pay premiums. It's important to remember that accessing cash value through withdrawals will lower your policy's death benefit.

Convertible term life insurance is the process of changing your term life insurance plan into a permanent life insurance policy. When you do this, you’ll likely have access to the living benefits available with your new policy and cash value growth potential. This process can be beneficial because you can convert without the need to go through the medical qualification process again.

How to use your living benefits with your life insurance policy

As we mentioned before, life can be unpredictable, and life insurance policies are put in place to manage those “just in case” situations. If you opt into a life insurance policy that allows you to use living benefits, you’ll probably wonder what that means. It means you can use the accrued cash value or death benefit while you are alive, depending on the benefit utilized.

What is the cash value of life insurance?

Cash value on your life insurance policy is the savings component that’s baked into permanent life insurance policies like universal life insurance and whole life insurance policies. When you pay your premiums for these policies, part of the payment is diverted to the cash value. This cash value can grow at either a fixed or variable rate as time progresses depending on the type of policy you have. It’s this amount that you may be able to access in times of need while you’re alive.

Typical ways to access cash value in a life insurance policy:

  • Loans allow you to borrow money from your accrued cash value for any reason. However, they’ll accrue interest charges that can be detrimental to your death benefits. 
  • Withdrawals let you withdraw money from the cash value you’ve accumulated without interest charges. The drawback to using a withdrawal is that it could raise your premium or lower your death benefit.
  • Surrendering a policy essentially means you’ve terminated your policy outright, and it automatically gives you the cash value that had accrued, less any surrender charges and outstanding policy expenses. If you decide to go this route, you’ll need to determine if you want to go without coverage or if you want to reapply for another policy.
  • Using cash value to pay premiums is essentially just what it sounds like. Depending on the type of policy, you can use the cash value that you have accrued with your life insurance policy to pay a portion or all your premiums.

What are living benefit riders?

A living benefit rider is a type of life insurance rider that you can add to your life insurance policy to use in your lifetime. Some allow a portion of your death benefit to be paid out early if you are chronically or terminally ill. The terms and amount available will be defined in the policy.  Any living benefit paid from the death benefit will reduce the amount payable to your beneficiary. This payout is meant to help provide you with comfort for the end of your life as well as help with medical expenses. There are different types of living benefit riders to consider:

  • Terminal illness rider allows you to get a portion of your death benefit early when you’re expected to pass away within a stated period.
  • Critical illness rider ensures that benefits are paid directly to you to pay for treatment services for the illness specified in your policy contract.
  • Long-term care riders are put in place to cover the cost of in-home care or nursing home expenses as you get older.

What are life settlements?

A life settlement is the process through which you sell a life insurance policy to a third party for a lump sum payment. A life settlement differs from surrendering a policy because you’re actively selling to a third party instead of relying on the life insurance provider to terminate it.

Frequently asked questions about living benefits with your life insurance policy

Can you cash out life insurance while alive?

That depends. If you’re in a permanent life insurance policy, then you’re able to withdraw cash while you’re alive through loans, withdrawals, or surrendering the policy. Before deciding to tap into your life insurance policy for cash, consult an insurance agent or representative to determine how it will affect your beneficiaries after your death.

What are examples of living benefits?

Living benefits are typically attached to your life insurance policy in the form of riders like terminal illness riders, critical illness riders, and long-term care riders and cash value benefits like loans and withdrawals.

Is life insurance with living benefits worth it?

The value of a having living benefits available will depend on a variety of factors unique to your situation. Living benefits as a part of your life insurance policy can offer you the comfort and flexibility to live your life knowing that you may have an extra funding source available should you to need it.

Ready to start planning for your future? Get a free term life insurance quote from Protective.



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All Learning Center articles are general summaries that can be used when considering your financial future at various life stages. The information presented is for educational purposes and is meant to supplement other information specific to your situation. It is not intended as investment advice and does not necessarily represent the opinion of Protective or its subsidiaries.

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