A living benefit rider can help you maintain control when your health fails you.


Key points

  • Most living benefit riders are designed to pay out death benefits before you die.
  • The accelerated death benefit is the most common type of living benefit.

To better understand how living benefits work, it helps to understand what a rider is. A life insurance rider is an optional piece of coverage or a feature added to your life insurance policy. Each rider adds something extra to the policy, allowing you to customize your coverage with the type of protection you desire. One of those riders is referred to as a “living benefit.”

Read more: Life Insurance Riders: Which Are Right for You?

Types of living benefit riders

To be clear, there’s more than one type of living benefit rider, and depending on the life insurance company, you may see the phrase “living benefits” bandied about extensively. That’s because they use it to describe any benefit you receive before death. Some companies even refer to loans taken out on whole life insurance policies (a type of life insurance that accrues cash) as a living benefit, while others provide discounts for medical care and fitness centers.

For simplicity sake, we break living benefit riders down into the three most serious camps:

Chronic Illness

Suppose you’re diagnosed with a serious illness or physical condition that is expected to permanently affect your ability to get by without assistance. In that case, some insurers will allow you to receive death benefit funds from your life insurance to help you pay for that assistance.

Critical Illness

A critical illness rider allows you to access death benefits if you are diagnosed with an acute medical condition like cancer, sudden cardiac arrest, paralysis, or a stroke. Funds are also available if you need a major organ transplant, are diagnosed with kidney failure, or need a heart valve replacement. Any funds you receive reduce the amount of the death benefit distributed to your heirs after you die.

Terminal Illness

A terminal illness living benefit rider provides an early payout of death benefits if you’ve been given 12 to 24 months to live (depending on the insurance company). Rather than wait until you die and distribute the proceeds of your policy to heirs, the insurance company allows you to access the funds while you’re still here. The idea is to make your time left as worry-free and comfortable as possible.

Also, depending on the insurance company, you may be allowed to request all or a portion of the death benefit amount.

The funds can be used in any way you see fit. You can pay for medical care, modifications to your home, or take your family on a cruise. You don’t have to let the insurer know how you’re spending the money, and you are not required to provide receipts. It’s your money to be used tax free.

Some insurance companies include living benefits in their policies, while others charge an extra fee to add them. Still, depending on your situation, it may be worth paying a bit more for the coverage. Here are 6 ways living benefits can enhance your life:

  1. May allow you to remain in your home. No matter what’s going on in life, most of us prefer the familiarity of our own homes. Let’s say you’ve been diagnosed with something that will lead to the need for a wheelchair. By accessing living benefits, you’ll have the money to modify your home in a way that will allow you to remain living there.
  2. Covers the cost of help around the house. If you need the funds to pay for things that are becoming increasingly difficult for you to do, like mowing the lawn or cleaning the house, living benefits can help you pay for those services.
  3. Takes the burden of care off your family’s shoulders. If you have family, chances are, they’re going to want to make life as easy as possible for you, no matter what’s going on in their own lives. You can help relieve some of their concerns by having the funds to pay for others to help, even if it’s part-time.
  4. Makes your final days more pleasant. If your doctors have told you that you don’t have long to live, having the money to do whatever you want can help create new memories and make your final days more comfortable.
  5. Allows you to control how money is spent. One of the best things about living benefits is that you don’t have to answer to anyone about how you spend the money. Want to buy something special for each of your grandchildren or take the family out to eat once a month? It’s entirely up to you how the money is spent.
  6. May leave more money to your beneficiaries. Paying out of pocket for medical care, assistance around the house, and other financial issues can quickly deplete the accounts you’ve worked hard to build over the years. If leaving a little something to those you love is important to you, living benefits helps make it possible.

Read more: How to Choose Your Life Insurance Beneficiaries

As mentioned, different insurers use the term “living benefits” differently. If you’re purchasing a new policy or want to add a rider to an existing policy, make sure you know which type of living benefit coverage you’re most interested in before reaching out to an agent.

Providing Peace of Mind for Life’s Moments

Insurance is not something we often think about until we need it and typically that means you aren’t spending much time researching what is best for you and your personal situation. Taking the time to educate yourself on the basics of insurance, whether it’s how to get discounts on your homeowners insurance policy or the best way to get a car insurance quote, will help you save money and ensure you have the right insurance coverage for your needs.