Is Life Insurance With Living Benefits Worth It?

Life Insurance: Protecting Your Loved Ones and Beyond with Living Benefits

Life insurance is a powerful tool that offers more than just a death benefit. Did you know that life insurance can also provide financial security and tax advantages while you’re still alive? It can be used for emergency expenses, medical bills, and even supplement your retirement income. Life is unpredictable, and preparing for the unexpected is crucial. Let’s delve into the significant benefits of living benefits and how they can add value to your life insurance policy.

This blog will explain how to use it, its benefits, and if it is worth it. There are two types of living benefits: accelerated riders (part a) and building cash value (part b). We have included a Q&A section at the bottom of the blog for your convenience.

Key terms:

What is a death benefit?
When you pass away, your loved ones will receive the amount from your insurance company. They can use it for anything; bills, mortgage, college, and retirement.

What are living benefits?

Living benefits are additional features in life insurance policies that can be accessed by the policy owner while they are alive. They offer flexibility and can help alleviate financial burdens during challenging times. Two key types of living benefits are accelerated riders and building cash value.

What is cash value?

With permanent life insurance, you, in most cases, will likely have access to Cash Value. Cash Value accumulates over time and comes with tax advantages such as tax-deferred growth and tax-free cash value. The cash value can supplement retirement income, college savings, legacy, and long-term care.

Part A Which types of Life insurance policies have living benefits (accelerated riders)?

* possible with term, whole, universal, and index life insurance.

What are Accelerated riders?

Accelerated riders provide benefits if you are critically, terminally, or chronically ill. They allow you to receive a portion of your death benefit while still alive, providing financial relief during challenging circumstances. This can help cover medical expenses, treatments, and other costs associated with your illness. However, it’s important to note that the amount received through an accelerated rider may be subtracted from your death benefit, ultimately reducing the amount your beneficiaries would receive upon your passing. Most life insurance policies offer living benefits that you can use when you are still alive if you are critically, terminally, or chronically ill. Riders are additional options or benefits that allow you to customize your policy.

Are you prepared for an unexpected illness? 

In the U.S., heart disease is the number 1 cause of death. Experts predict cardiovascular disease will grow exponentially globally over the next few years (heart.org). Approximately 39.5% of men and women will be diagnosed with cancer at some point during their lifetimes (cancer.gov). It’s natural to believe that unforeseen circumstances won’t happen to us. However, it’s always wise to be prepared for the worst rather than suffer the consequences of being unprepared. If you were to face an unexpected illness, your expenses would increase, your ability to work would decrease, and your income would suffer. This could put you in a difficult situation.

We understand that planning for a serious illness can be a daunting task. It’s not easy to face the possibility of needing medical care and the financial burden it can bring. That’s why an accelerated death benefit rider can be such a relief during this challenging time. It can help you access the care and treatment you need without depleting your savings or worrying about the future of your children’s education or retirement. We know that your health is a top priority, and we want you to be able to invest in it without added stress. This rider can also ease the burden on your loved ones, giving you all peace of mind. We hope this solution can comfort you and help you look forward to a brighter future.

By selecting this alternative, you have the opportunity to receive a portion of your life insurance while you are alive. However, it’s important to note that if you opt for this route, your beneficiary may receive a reduced amount in the event of your passing.

What types of illnesses are eligible for a living benefit?

1. Chronic Illness: If you are unable to perform two out of six activities of daily living, you may be eligible for a living benefit. This rider typically pays a monthly benefit and is not part of long-term care insurance.
2. Critical Illness: Conditions such as heart attack, stroke, cancer, end-stage renal failure, or major organ transplant may qualify for living benefits. You can receive some or all of your death benefit to help cover expenses related to the illness.
3. Terminal Illness: This rider pays a benefit if you are diagnosed with a terminal disease and have a life expectancy of 12 to 24 months. The funds can be used for final expenses, experimental medicine, or fulfilling last wishes.

Benefits and Considerations:

Having an accelerated rider added to your insurance policy is often affordable, with potential monthly costs ranging from $5 to $10, or sometimes no additional cost at all. The living benefits can be a lifeline in times of unexpected illnesses, providing financial support when you need it most. While health insurance covers certain aspects of medical care, living benefits offer an extra layer of protection and can be a valuable addition to your overall coverage. 

How will you receive the living benefits?

If you have a qualifying illness, the insurance company will pay out the If you have a qualifying illness, the insurance company will pay out the benefit. The first thing you need to do is file a claim with your insurance provider. You might need to submit medical records showing your illness’s severity. Some insurance policies have a 30 to a 90-day waiting period before they pay out the accelerated benefits. The payout could be monthly, annually, or lump sum. There might be an administrative fee when receiving your payout, and your state might have some local taxes, but there are no federal taxes on your benefits. 

Do you still need an accelerated rider if you have health insurance?

Most likely, your traditional health insurance doesn’t cover all the care you need if you get one of the three illnesses mentioned earlier. However, health insurance covers parts that an accelerated rider won’t, so adding a rider should never replace your health insurance. The best way to financially protect yourself and your family is to add extra protection to your policy.

Is it worth it?

Advantages

• Many policies have them built in at no additional cost
• Sometimes you can use them as early as 30 days from the start date of the policy
• Also available if you have a term policy
• Money doesn’t have to be repaid
• It gives peace of mind

Disadvantages:

• May reduce money away from your death benefit 
• Administrative costs
• Sometimes your premium will be slightly higher
• The amount you receive is based on the severity of your health illness
• It might be taxed locally

Not sure about adding an accelerated rider to your policy? Click here to schedule a meeting with one of our policy engineers to get more information or discuss other options, such as; disability insurance or long-term care insurance.

Part B; Building cash value with living benefits.

Whole and universal life insurance policies offer another type of living benefit—building cash value. Over time, your policy accumulates cash value, which co

mes with various advantages, including tax-deferred growth and tax-free access to cash value. This can be used to supplement retirement income, fund college savings, leave a legacy, or even cover long-term care expenses.

These funds can be used as a supplement for retirement income or help to achieve other financial goals such as:

1. Guaranteed, tax-deferred growth.
2. Collateral for policy loans
3. Dividend payments.4. Flexible funds for retirement
5. College savings.
6. Legacy opportunities.
7. Long-term care.
8. Tax benefits.

How can you use these living benefits?

1. Cash value withdrawal lets you withdraw a portion of the cash value. You don’t have to pay taxes on the amount you take out if the amount is less than or equal to your premium payments.
2. Policy loan. You can take out a loan with a lower interest rate than other lenders.
3. Policy surrender: Canceling your policy to access your cash value. The insurer will pay your cash value minus the leftover premium and loans you took.
4. Long-term care benefits. If you add a long-term care benefit to your whole life insurance policy, you can access your death benefit to cover long-term care expenses. Your death benefit will be reduced by the amount of the long-term benefit you used

These benefits allow you to withdraw cash value or take out a loan tax-free whenever needed. There are many situations where you might need some extra money. Maybe you need another investment for your business, your retirement is taking longer than expected, and you are running out of money, or you want to help your children pay for their college tuition.

Benefits and Considerations:

Building cash value provides you with a tax-advantaged savings component within your life insurance policy. You can access the cash value through withdrawals or policy loans, without incurring taxes on the withdrawn amount, as long as it is less than or equal to your premium payments. However, it’s essential to remember that building cash value is associated with permanent life insurance policies, which are generally more expensive than term insurance.

Is it worth it?

• Money grows tax-deferred 
• Tax-Free
• Withdraw money or take out a loan whenever you need

Disadvantages 

• Only permanent policies
• More expensive than term insurance
• Not yet available for self-enrollment

Click here to get your Life Insurance quote or schedule an appointment with a licensed policy engineer.