Life Insurance with Living Benefits: The Ultimate Guide
Posted in Life Insurance last updated on February 19, 2021
Life insurance is for when you die, right? The deal is that you pay your premiums every month and if, God forbid, you were to pass away, your loved ones would receive a payout. It’s a good deal.
But what if something tragic happens and you don’t die? What if you still have 12 months left to live? What if you become critically ill or have severe cognitive impairment?
More often these days, people don’t die instantly. Know anyone who has battled cancer? If so, then you know their battle could last years and become very costly.
Wouldn’t it be nice to be able to use some of that life insurance money to take care of expenses while you’re still living?
That’s where Life Insurance with Living Benefits comes in.
What is Life Insurance with Living Benefits?
Living Benefits are a collection of riders placed on a life insurance policy, often called Accelerated Benefit Riders or ABRs.
They give you the option of receiving some or all of your policy’s death benefit while you’re still living.
In order to get access to these benefits, you have to qualify through one or more of roughly 18 different “triggers”. These triggers determine if you qualify based on a critical or chronic illness or being diagnosed with a terminal illness. Not every policy allows for every trigger so make sure you review your options with your agent.
When you’re facing tough days ahead, Life Insurance with Living Benefits can provide your family with options they wouldn’t have otherwise. It can provide extra peace of mind that isn’t always found in traditional life insurance.
You do have to be approved to be able to purchase life insurance with living benefits, although some guaranteed issue plans do offer living benefits as well.
Chronic Illness
Living Benefits may be provided if you have a chronic illness. “Chronic” means persisting for a long time or constantly recurring.
To be considered as having a chronic illness according to most life insurance with living benefits, you must be unable to perform two out of six Activities of Daily Living (ADLs). Alternatively, you may qualify if you experience severe cognitive impairment.
The six Activities of Daily Living are:
- Eating
- Bathing
- Dressing
- Toileting
- Transferring (getting in and out of bed or a chair without help)
- Continence (control of bladder and bowel functions)
Critical Illness
You may also qualify to access living benefits if you experience a Critical Illness. Some examples of a critical illness are having cancer, a heart attack, or stroke.
There are many “triggers” that can determine if you are eligible to access your living benefits due to a critical illness.
Each insurance company may have a different list of triggers, but here are the most common:
- Heart Attack
- Stroke
- Invasive Cancer
- End Stage Renal Failure
- Major Organ Transplant
- ALS – Amyotrophic Lateral Sclerosis (Lou Gehrig’s Disease)
- Blindness
- Paralysis
- Aterial Aneurysms
- Central Nervous System Tumors
- Major injury to three or more organs
- AIDS
- Severe organ disease resulting in significantly shortened life expectancy
- Parkinson’s, Huntington’s, Multiple Sclerosis, and other severe central nervous system diseases
- Major burns covering a large amount of your body
- Loss of limbs
In addition to each insurance company having different triggers, each state may limit them as well. For example, California limits covered critical illnesses for life insurance policies.
Make sure you ask your life insurance agent which triggers your policy allows for.
Terminal Illness
The third and final way to access living benefits is if you are diagnosed with a terminal illness.
Most policies that include life insurance with living benefits will allow for payouts when you are diagnosed with a condition that is expected to result in death within 24 months.
Some policies, and certain states such as Connecticut, Florida, and New York, may require the diagnosis to result in death within 12 months.
How Much of My Benefit Can I Access?
Now that we know what a Living Benefit is and what can trigger the coverage, it would be nice to know just how much money is available.
Every policy is different, of course, but you can safely assume that if your Living Benefit coverage is triggered, you will be able to access anywhere from 50% to 100% of your death benefit, up to a million dollars or more.
That could potentially be hundreds of thousands of dollars. Imagine the difference that money could make.
You could pay medical bills or even for experimental treatments that aren’t covered by your health insurance.
You could pay for travel and lodging to see a specialist.
Or you could simply cross things off your bucket list and make life more comfortable.
Are My Living Benefits Taxable?
Generally speaking, life insurance proceeds are not taxable. Life Insurance with Living Benefits is no exception.
With a traditional life insurance policy, your beneficiary would receive a payout upon your death. That payout is not taxable, no matter how large the benefit is.
When you opt to receive Living Benefits, you are essentially making yourself the beneficiary for a portion of the benefit amount. Therefore, you are treated just like any other life insurance beneficiary and are not taxed on the proceeds.
How Much Does Life Insurance with Living Benefits Cost?
Living Benefits are often added as a life insurance “rider”. A rider is simply an addition to a life insurance policy that usually add additional coverage.
Some examples of common life insurance riders include Accidental Death, Waiver of Premium, Child Term, and of course Living Benefits or Accelerated Death Benefits.
In most cases, you have to pay to include one of these riders to your life insurance policy.
However, many insurance companies are now offering life insurance with living benefits included at no extra cost.
When shopping for life insurance with living benefits, make sure you ask if the living benefits are included in the premium you are quoted.
Living Benefits with Final Expense Life Insurance
There are different life insurance plans available for different needs. Short term needs like a mortgage, raising children, or college tuition require short term coverage (Term Life Insurance).
Permanent needs such as making sure there is money to take care of your final expenses require permanent coverage (Final Expense Insurance or Burial Insurance).
Final Expense Life Insurance is designed to provide protection against the one cost we will all eventually run into. Burial or Cremation.
But thanks to Living Benefits, what was once a simple plan to make sure other people aren’t burdened by our passing, has now become a plan to protect ourselves as well.
That’s because many final expense life insurance plans now include at least the Terminal Illness portion of Living Benefits.
Final Expense Life Insurance with Living Benefits is a great way to make sure you and your loved ones are protected against the inevitable.
Sample Rates
Life insurance rates are determined by your age, health, and lifestyle. Luckily, insurance companies that are focusing on living benefits are increasingly adding the riders at no extra cost.
Here are some sample rates comparing 4 different life insurance products. These are actual rates from actual life insurance companies.
Company A offers no Living Benefits at all. Companies B & C offer just the Terminal Illness trigger. Company D offers all three triggers (Chronic, Critical, and Terminal Illness).
Notice how in most cases, Company D which is offering all three living benefit triggers has rates that are equal to or better than Company A, which offers none.
Asking your agent about Life Insurance with Living Benefits is a must.
| Death Benefit & Term | Company A (No Living Benefits) | Company B (With 1 Living Benefits Trigger) | Company C (With 1 Living Benefits Trigger) | Company D (With 3 Living Benefit Triggers) |
|---|---|---|---|---|
| $100,000 20 Year Term | $18.71 | $28.18 | $24.30 | $21.51 |
| $250,000 20 Year Term | $35.63 | $45.94 | $38.70 | $35.64 |
| $500,000 20 Year Term | $61.95 | $84.44 | $68.16 | $60.48 |
| $1,000,000 20 Year Term | $116.99 | $149.19 | $125.78 | $114.91 |
Rates are based on a 40 year old Male with a Standard health class. Your rates will vary.
Where to Buy Life Insurance with Living Benefits
Now that you have a firm grasp on Life Insurance with Living Benefits, the next step is to find coverage.
You won’t find life insurance with living benefits at work, so the best place to start is with an independent agent.
In fact, you can get started with us online Right Here.
Gone are the days when a stranger comes to your house, sits down at your kitchen table, and spreads out life expectancy charts and life insurance brochures.
Life Insurance with Living Benefits can be purchased right over the phone. In fact, that’s the only way we do it. Some of our policies don’t even require a medical exam.
It’s part of our Life Guide Guarantee:
1. No home sales visits
2. No pressure
3. No obligation (even after applying)
4. Only the policy that fits you best
When you’re ready to apply, we’ll ask you some basic questions about you and your health. Then we’ll complete the application electronically. That’s all it takes to get started!
About Castaline Life Insurance
Castaline Life Insurance Agency is led by Jeff Smith, a devoted husband and father of 4.
As family providers ourselves, we understand the burden you feel to protect the ones you love.
Our Life Guides help anxious, worried, and uncertain people find peace of mind through Life Insurance.
We offer a simple 3 Step process:
- Determine the type and amount of life insurance you need.
- Provide instant quotes.
- Review your quote and help you apply.
When it’s all done, you’ll feel calm, relaxed, and confident knowing you’re now a Family Protection Hero.
