LIFE INSURANCE
What Are Living Benefits?
Life insurance is usually thought of as protection for the people you love after you're gone. But some life insurance policies can also provide financial protection while you're still living.
3-minute read
When most people think of life insurance, they think of the death benefit—the money paid to your loved ones after you pass away. This is the traditional role of life insurance, providing a vital safety net to help replace lost income, pay off a mortgage, or fund a child's education.
However, many modern life insurance policies include features that allow the policyholder to access a portion of their death benefit early, while they are still living. These are known as living benefits, and they can provide a crucial source of funds when you need them most, such as during a serious illness.
Why Living Benefits Matter
Modern medicine has significantly improved survival rates for many major illnesses. But surviving a serious health event often comes with a high price tag. Beyond the medical bills, there are other costs that people often overlook, such as lost income if you or a family member can't work, specialized care, or modifications to your home.
Living benefits give you the option to accelerate your policy's death benefit effectively 'buying out' a portion of your benefit while you're still living. These funds are generally paid to you in a lump sum or installments, and you can usually use the money however you choose.
Whether you use those funds to pay for out-of-pocket medical expenses, cover daily living costs, or pay for experimental treatments not covered by insurance, living benefits offer flexibility when your family may need it most.
Living benefits can add another dimension to life insurance—helping provide financial protection not only after death, but potentially during certain qualifying events while you're living.
What Types of Situations May Qualify?
Terminal Illness
Designed for individuals who are diagnosed with an illness that is expected to result in death within a short timeframe (usually 12 to 24 months).
Chronic Illness
Some policies may provide access to living benefits when a qualifying chronic illness significantly affects your ability to independently manage everyday activities.
Critical Illness
Designed for individuals who suffer a major health event specified in the policy, such as a heart attack, stroke, or invasive cancer diagnosis.
Definitions, eligibility requirements and available benefits vary by insurance company and policy.
Health Insurance and Life Insurance Solve Different Problems
It's important to understand that life insurance living benefits are not a replacement for health insurance. Health insurance pays for medical services like hospital stays, doctor visits, and medications. It's meant to cover the bills directly from your healthcare provider.
Living benefits, on the other hand, are cash paid to you. They are designed to help you handle the financial ripple effects of a serious illness—the expenses that health insurance won't touch. This could include your mortgage, car payments, or even paying for modifications to your home if your mobility is impacted.
While health insurance helps you pay the healthcare professionals, living benefits can help you pay the rest of your bills, so you can focus on your recovery without the added stress of financial ruin.
The goal is flexibility at a time when your family may need it most.
What's the Trade-Off?
It's important to remember that living benefits are not 'free money.' When you accelerate a portion of your death benefit, you are essentially reducing the amount that will be paid to your beneficiaries after you're gone. The specific rules for how this works varies by policy, and you should always understand the potential impact on your overall plan.
However, for many families, the tradeoff is well worth it. The ability to access those funds when you're facing a critical need can be the difference between maintaining your home and losing it, or being able to afford specialized care that significantly improves your quality of life.
Does Your Current Life Insurance Include Living Benefits?
Many older life insurance policies do not include living benefits, while others might include them but only for certain circumstances. If you're not sure whether your current coverage includes living benefits, we can help you review your policy and understand your options.
A few questions worth asking:
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Does my current policy include living benefits?
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What events or conditions qualify?
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How much of the death benefit could be accessed?
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Would using the benefit reduce what my beneficiaries receive?
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Does my employer-provided coverage include this protection?