What Are Living Benefits?

Living Benefit Riders are important to consider when shopping for life insurance. Many policyholders decide to skip this option when they purchase their initial policies — and regret it later.

The reason living benefits are so important is that they can give you access to a portion of your policy’s death benefits without dying. This rider allows you to get cash when you need it the most – which for many people, is when they fall ill.

For many, the Living Benefits rider has turned a catastrophic situation into a financially manageable one.

The two most important living benefits riders

  • Critical Illness rider – This rider gives you the option to accelerate some of your benefits while you’re still alive. This is true if you are diagnosed with a major illness like a heart attack or stroke, or if you need an organ transplant.
  • Chronic Illness rider – This rider gives you the option to accelerate benefits early if you require major help in doing daily living activities – i.e., cannot perform those activities on your own.

Living benefits refer to the portion of a life insurance payout you’re able to receive while living. With this option, you and/or your beneficiaries have some leeway to draw funds from a policy early. The flexibility of this policy varies based on your situation and state laws, but exercising your option for a living benefit rider can be of great assistance in the event of an unexpected financial loss or hard times.

Are you eligible for living benefits?

Living benefits riders are attached to your life insurance policy, so if you can medically qualify for a life insurance policy then you should be able to qualify for the riders. Some carriers can require additional underwriting in order to qualify but most or issue and approved based on the policy.

Commonly, these funds are used for assisted care, home modifications to accommodate a disability, nursing home fees and other expenses related to injury and illness. Some insurance companies offer this rider for free and include it as part of all policies. Others may offer a one-time fee at setup. There may also be fees upon disbursement of life insurance.

What else should you know?

There are other things to consider when including this rider.

One is taxation — customarily these amounts aren’t federally taxed, but— a state tax may be in place for this rider. As of January 1997, NO federal tax can be placed on the disbursement of funds associated with this rider.

Second, depending on your policy, you may be able to withdraw some funds from the policy based on need, or the entire amount. Obviously, the more you draw, the fewer benefits your loved ones will be entitled to upon your passing.

What does this Rider Look Like?

We have a handful of carriers who offer living benefit rider on their term and permanent policies. A few of these carriers offer simplified issue underwriting and require no exam. We’re very familiar with the process of successfully adding this rider to a policy, and we can help you.