Definition
The term “Living Benefits of Life Insurance” refers to provisions within a life insurance policy that allow the policyholder to access a portion of the policy’s death benefit while they are still alive, under specific conditions. These conditions often include suffering from a terminal illness, requiring long-term care, or experiencing a critical illness, among others. The primary purpose of these benefits is to provide financial support during times of significant medical or financial distress, offering the policyholder and their family peace of mind and additional financial stability.
Examples
- Terminal Illness Rider: A policyholder diagnosed with less than 12 months to live can access a portion of the death benefit to cover medical expenses and other costs.
- Critical Illness Rider: If a policyholder is diagnosed with a severe condition such as cancer, stroke, or heart attack, they may receive a lump sum payment to help cover treatment costs.
- Long-Term Care Rider: Provides funds to cover the costs of long-term care services, either in a nursing home, assisted living facility, or at home.
- Chronic Illness Rider: Allows the policyholder to access part of the death benefit if they are unable to perform a number of daily living activities, such as eating, bathing, or dressing, for a specified period.
Frequently Asked Questions (FAQs)
What are living benefits in a life insurance policy?
Living benefits allow a policyholder to access a portion of their life insurance policy’s death benefit while they are still alive, typically in situations involving severe illness or extensive care needs.
How do living benefits differ from the death benefits of a life insurance policy?
While death benefits are paid out to beneficiaries after the policyholder’s death, living benefits are available to the policyholder during their lifetime under specific conditions, such as critical illness or long-term care needs.
Can using living benefits affect the death benefit?
Yes, accessing living benefits will typically reduce the amount of the death benefit that is ultimately paid to the beneficiaries after the policyholder’s death.
Are there any costs associated with adding living benefits to a life insurance policy?
Usually, there are additional costs or premiums associated with adding riders for living benefits to a life insurance policy, but these costs can vary based on the insurer and the specifics of the rider.
Can all life insurance policies include living benefits?
Not all life insurance policies automatically include living benefits. They are typically available as riders, which can be added to a base policy at an additional cost.
Do I need to provide medical proof to claim living benefits?
Yes, policyholders generally need to provide medical documentation and meet specific qualifying criteria to activate living benefits.
Related Terms
Terminal Illness Rider
A rider in a life insurance policy that allows the policyholder to access a portion of their death benefit if diagnosed with a terminal illness.
Critical Illness Rider
An additional feature in a life insurance policy that provides a lump sum payment if the policyholder is diagnosed with a specified critical illness.
Long-Term Care Rider
A rider that offers policyholders funds to cover long-term care expenses, should they need extended medical care or assistance with daily activities.
Chronic Illness Rider
A rider that allows a policyholder to access part of their death benefit if they become unable to perform a set number of daily living activities due to a chronic illness.
Online References
- Investopedia: Living Benefits of Life Insurance
- Insurance Information Institute: Living Benefits
- Policygenius: What are Living Benefits?
Suggested Books for Further Studies
- “The Life Insurance Policy Crisis: The Advisors’ and Trustees’ Guide to Managing Risks and Avoiding a Client Crisis” by Sheryl Moore and Larry R. Rybka
- “Life Insurance: A Consumer’s Handbook” by Joseph M. Belth
- “The Complete Idiot’s Guide to Getting Life Insurance” by Scott Frisch
Fundamentals of Living Benefits of Life Insurance: Insurance Basics Quiz
Thank you for stepping into the world of life insurance living benefits. This journey will empower you with valuable knowledge for diversified financial planning!
