Living Benefits: How to Use Your Life Insurance Before You Die

Life insurance is primarily designed to help the people you leave behind — think spouses paying the mortgage, kids off at college, loved ones planning a funeral or charities you want to support.

Some life insurance policies, however, come with features you can use while you’re alive. Life insurance with living benefits can help with medical bills, end-of-life care or even a kid’s education.

The financial need is clear. Seven in 10 Americans who live to age 65 will have some need for long-term care services, according to pre-pandemic research by the Urban Institute. And in 2022, the U.S. Census Bureau said nearly 2 in 5 working-age Gen X or boomer Americans don’t own a retirement account.

Here are four ways life insurance with living benefits can help bridge those gaps.

Accelerated death benefits

Sometimes, due to illness, people end up with health problems that require expensive intervention. In these cases, having access to cash can be essential — and accelerated death benefits can help.

“You may be able to tap into some of your death benefit in the case of a chronic, critical or terminal illness,” says Tanisha Coffey, an independent broker with Rock Solid Financial in Florida. “Many companies offer all three [coverages].”

Accelerated death benefits are automatically included in many life insurance policies or are free to add, but they may not cover all types of illnesses. If this feature is important to you, look closely at the details when comparing insurers.

The downside: Insurers typically limit the total value that can be paid out to a policyholder via accelerated death benefits, and payments will reduce the amount your life insurance beneficiaries receive when you die. Accessing money from your life insurance policy can also affect your eligibility for public assistance, as the benefit may count as income.

Waiver of premium rider

According to the Social Security Administration, a 20-year-old has a more than 1 in 4 chance of becoming disabled before reaching retirement age. That can lead to fewer employment opportunities and other financial hardships as medical bills and daily care costs add up.

A waiver of premium benefit pauses your life insurance premiums if you can no longer work due to injury, illness or, in some cases, unemployment. This benefit only covers the cost of the life insurance; it doesn’t give you cash to use toward other expenses. It’s typically available as a life insurance rider, an optional add-on to your policy, for a fee.

Depending on your insurer, a waiver of premium rider may not kick in until after you’ve been unable to work for six months or when you’re considered totally disabled. As a result, even with this rider, you may have long periods when you can’t physically do your regular job but you’re still on the hook for premium payments.

You may not need this rider if you have disability insurance you can dip into to cover your life insurance premiums.

Long-term care benefits

Long-term care benefits help take care of the costs of a nursing home stay or other end-of-life care. In most cases, these services aren’t covered by Medicare or normal health insurance.

The cost of long-term care can be a major financial hardship for those who need it, running upward of $200,000 over a person’s life, according to Robert Eaton, a principal actuary with Milliman, an international risk management firm. These costs are in addition to medical expenses like surgeries or cancer treatments, which long-term care policies don’t cover.

A long-term care rider provides similar coverage to a stand-alone long-term care insurance policy. It can cover part of the cost of care when you’re no longer able to perform activities such as feeding yourself, moving around and using the toilet. Long-term care riders generally are available only on permanent life insurance policies, such as whole and universal life, and they will reduce your death benefit when they pay out.

Tapping your policy’s cash value

If you own permanent life insurance, your policy builds cash value over time. Once you’ve accumulated enough cash value, you can borrow against it or withdraw funds and use the money for whatever you want.

The life insurer will charge interest if you borrow from your policy, but you don’t have to repay the loan while you’re alive. Any borrowed amount plus interest charges will be paid back from the policy’s death benefit when you die.

If you’re not worried about the option to keep your full death benefit, you can withdraw money from your policy. This will reduce the overall benefit available to you, though there are no interest charges.

If you’re interested in taking loans or withdrawals, ask how your insurance company manages the process — preferably upfront, when you’re buying your policy. You’ll likely have to wait several years to build up the cash value required for a loan or withdrawal.

Revisiting existing policies

If you previously purchased a policy, Coffey recommends taking a look at what’s included. While older policies may not have included options like accelerated benefits, you may now be able to add them to your existing policy.

In some cases, modifying your older policy may not be allowed, and you’d need to shop for a new policy to get the options you want. This can be tricky, because a new policy can cost more than your old one. Your age and any health problems you’ve developed can contribute to higher life insurance premiums.

Still, Coffey believes adding living benefits can be worth the trade-off for some people — particularly if they shop around and compare life insurance quotes.

“The chances are, they can get something equivalent to what they’re paying and still have those benefits and close to the amount of coverage they currently have,” she says.

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