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Life insurance with living benefits

A life insurance agent goes over some possibilities with two clients (both senior African Americans)
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Buying life insurance can feel strange, even if you buy from the best companies. After all, why would you pay for something that will not be useful until after you pass away?

To protect your loved ones, of course.

But you do not necessarily need to pay into a policy that will not serve you at all during your lifetime. With living benefits, you can take advantage of some aspects of your policy while you are alive. What are the living benefits of life insurance policies? And are they something you should add to your coverage?

What are the living benefits of life insurance?

Living benefits are exactly what they sound like: benefits in a life insurance policy that you can make use of while you are still alive.

Some life insurance living benefits come built into policies, but many have to be attached to the coverage with a rider. These riders often give you more protections, but you will pay an additional premium to have them included in your policy.

Not all living benefits work the same way. To help you determine if life insurance with living benefits is right for you, you should be aware of some of the most common options.

Types of life insurance living benefits

There are many types of living benefits offered with various life insurance policies. Below are some of the most common types of living benefit options.

Cash value

If you buy a permanent life insurance policy (as opposed to a term policy), a portion of your premiums will go into an account that builds cash value over time. Depending on the type of permanent policy you get, that money might be invested to grow faster or may earn interest at a steady rate.

Regardless, you have the option to use that cash value while you are still alive. If you have accrued enough, for example, you can use that money to pay your premiums.

Alternatively, you can use your cash value as a loan. You will need to repay that money and any applicable interest or it will be deducted from your death benefit.

Finally, you have the option to completely surrender your policy to get your cash value as a lump sum. If you exercise this option, you will lose your death benefit for your beneficiaries and any other life insurance living benefits that were attached to your policy.

There may be restrictions on how and when you can use the cash value in your policy. For example, you may have to wait until your policy has been in place for a certain number of years before you are able to access your cash value.

Accelerated death benefit riders

Also referred to as a critical illness or a terminal illness rider, you can generally add an accelerated death benefit rider to both permanent and term policies.

If you buy life insurance that includes an accelerated death benefit rider, certain qualifying events will allow you to access some of your death benefit before you pass away. For example, you might be able to get accelerated death benefits if you are diagnosed with a terminal illness or a permanent disability.

Using accelerated death benefit riders will lower the death benefit on your policy. You can use the money when your family needs it, but any death benefits you take early will reduce the amount your beneficiaries receive when you pass away.

Other types of living benefits

There are additional types of living benefits that can be added to life insurance policies. Although this is by no means an exhaustive list, these additional riders are also frequently offered by life insurance companies.

  • Return of premium riders: With a term policy, if you do not pass away before your policy expires, you will not receive any kind of policy payout — unless you have this rider. You will pay more for a term policy with this option, but if you do not pass away before the term expires, you get back the premiums that you paid into the policy.
  • Disability waiver of premiums rider: With this optional rider, if you are diagnosed with a long-term disability (usually one that lasts six months or more), you will not need to pay your premiums while the disability persists.
  • Long-term care benefits rider: Usually reserved for permanent policies, this living benefit rider allows you to use some of your death benefit to cover the cost of long-term care.

Frequently asked questions

How much does life insurance cost?

The cost of life insurance varies due to several factors. The amount you will pay depends on your individual features, like your age, your health and even your hobbies. Additionally, if you buy a term life insurance policy you will often pay less than if you buy a permanent policy. Riders, such as the living benefits riders discussed above, can add an additional amount to your premium as well.

Should I get a policy with living benefits?

It depends on your budget and your anticipated needs. The living benefits you may want to add depend on your risk tolerance and your ability to pay more. With more life insurance living benefits, you and your loved ones will have more options to use the policy while you are living. However, those additional protections often mean higher premiums.

Is life insurance with living benefits worth it?

There is a chance you could pay for life insurance living benefits you never use. But there is also a chance you could face a serious illness or disability and find yourself wishing you had paid for the extra coverage.

To help you decide if living benefits are the right choice for you and your loved ones, consider talking to an experienced life insurance agent or broker.

Written by
Kacie Goff
Personal Finance Contributor
Kacie Goff is a personal finance and insurance writer with over seven years of experience covering personal and commercial coverage options. She writes for Bankrate, The Simple Dollar, NextAdvisor, Varo Money, Coverage, Best Credit Cards and more. She's covered a broad range of policy types — including less-talked-about coverages like wrap insurance and E&O — and she specializes in auto, homeowners and life insurance.