Living Benefits Riders: Using Your Policy While You're Still Here

August 21, 2024 · Cedar Street Financial · Chillicothe, Ohio

Most people think of life insurance in one direction: it pays a benefit to your family after you die. That is still its core purpose. But many modern policies also include or offer something less familiar — provisions often called living benefits, or accelerated benefit riders — that may allow the policy owner to access part of the death benefit during life after certain serious diagnoses, according to the policy's specific terms.

The phrase "living benefits" covers a range of riders with different rules. This article explains the general idea, what situations these riders are often designed for, and why reading your policy's exact language matters. Nothing here is a promise about eligibility or amounts — terms vary widely by insurer and rider.

What an Accelerated Benefit Rider Generally Does

A rider is an addition or built-in feature that modifies or expands a policy. An accelerated benefit rider generally says that if the insured meets the rider's definition of a qualifying condition, the policy owner may request an advance of part of the death benefit while the insured is still living. Any amount accelerated is typically deducted from the benefit later paid at death, and it may affect other policy values as described in the contract.

How much may be available, how it is calculated, whether there are fees or adjustments, and whether the policy can remain in force afterward all depend on the policy and rider language. Some riders are included at no additional premium charge but may involve a charge or reduction when used; others are elected for an additional cost.

Types of Conditions Riders Often Address

Although definitions differ, accelerated benefit riders commonly fall into a few broad categories. Terminal illness riders generally relate to a diagnosis where life expectancy is limited to a period defined in the policy. Chronic illness riders generally relate to an inability to perform certain daily living activities, or a severe cognitive impairment, as defined in the rider and often requiring certification. Critical illness riders generally relate to specific listed diagnoses — a diagnosis that is not listed, or does not meet the stated definition, would not qualify.

Those distinctions matter. Two policies can both use the words "living benefits" and cover quite different situations, with different waiting periods, certification requirements, and limits. A rider is not health, disability, or long-term care insurance, and it does not replace those coverages.

How Families Might Use an Accelerated Benefit

In general terms, families who receive an accelerated benefit often use it for costs that arrive alongside a serious illness: medical expenses not covered elsewhere, travel for treatment, household bills while income is reduced, help at home, or breathing room so a spouse can take time away from work. The policy typically does not dictate how the money is spent once paid, but confirm that in your own policy's language.

There can also be tax and benefits considerations. Tax treatment depends on the type of rider, the condition, and current tax law, and receiving income or assets can affect eligibility for certain public benefits. This article cannot address your situation — for tax questions, consult a tax professional, and for benefits questions, consult a qualified advisor before requesting an acceleration.

Questions to Ask About Any Rider

If you have a policy, or are considering one, a careful reading starts with a few questions. Is a living benefits rider included, or must it be added? Which conditions qualify, and how are they defined? Is certification from a physician required, and is there a waiting period before the rider can be used? What portion of the death benefit may be accelerated, and how will using it affect the remaining benefit, premiums, and any cash value? Are there charges when the rider is exercised?

If you already own a policy, the answers are in your contract and any rider endorsements attached to it. If you cannot find them, ask the insurer or the servicing contact on your statement for the relevant pages. Keep those pages with your other family documents, and let your spouse or an adult family member know where they are.

Living benefits can be meaningful for some families, and an unnecessary complexity for others. Understanding what a rider does and does not do, in the precise language of a specific policy, is the best way to judge its value for your household.

Frequently Asked Questions

Does every life insurance policy include living benefits?

No. Many modern policies include an accelerated benefit rider or offer one as an option, but availability, conditions, and terms vary widely by insurer and policy. Check your policy documents or ask the insurer whether a rider is included and what it covers.

If I use an accelerated benefit, what happens to the death benefit?

Generally, any amount paid as an accelerated benefit reduces the death benefit later paid to beneficiaries, and it may affect other policy values. The exact calculation is defined in your policy and rider, so review that language or ask the insurer to explain it before making a request.

Are accelerated benefits the same as health or long-term care insurance?

No. An accelerated benefit rider is a feature of a life insurance policy that may advance part of its own death benefit under defined conditions. It is not health, disability, or long-term care insurance, and should not be counted on as a substitute for those coverages.