Life insurance is a valuable financial planning tool. You invest in this coverage to protect your family if anything were to happen, but there are multiple ways to do that. Choosing a plan with living benefits gives you options for how you want to use this asset. Although not a standard inclusion, these benefits have been growing increasingly popular. So, today we’ll address the basics of living benefits and their advantages.
Living Benefits Explained
A traditional life insurance plan includes what’s known as death benefit. It’s the amount you choose to be paid to your beneficiaries after your passing. It’s also possible to add living benefits to certain policies that allow you to access some of the funds while you’re still living. Pretty self-explanatory, right? Well, there are often stipulations about when you can use these benefits, how you can use them, and ultimately how much you’ll have available. It’s not always a matter of deciding you just want the funds for purely recreational purposes.
Typically, in order to tap into your living benefits, a serious illness must be present. In cases of a terminal illness, you can access a portion of your total death benefit in advance. It’s often paid as a lump sum, which you can then use for medical expenses, lost wages, or debt settlement within the final months. When the illness is chronic, requiring in-home health care, nursing home admissions, and/or hospice, you can apply for your living benefits to help cover these costs. Critical illnesses that strike suddenly, but are treatable, also qualify you for early coverage. So, if you’re diagnosed with a heart attack, stroke, cancer, organ transplant need, etc. you’ll have help paying for the out-of-pocket medical expenses, as well as your recovery.
Limitations & Liquid Assets
At their core, living benefits are still just part of a larger life insurance package. So, depending on why you’re using them and what type of policy you signed up for, you should always retain some of the death benefit. For example, if you purchase coverage in the amount of $100,000, you may access accelerated benefits that pay 4% of that original value each month toward home health care for a chronic illness. That means you get $4,000 per month to take the stress off of your family—that’s ultimately the point of life insurance, after all. If you use this for 12 months, that $48,000 will just be subtracted from the face valueof the policy. Meaning, your beneficiaries will still get the remaining $52,000 after your passing.
While it’s possible to attach living benefits as a rider to a term life policy, it’s more commonly associated with permanentlife insurance. You’ll also have access to larger amounts with a permanent policy like whole life or universal life. If you need help understanding the difference between these basic types—or getting quotes—one of our experienced agents at Freedom Insurance will gladly sit down with you for an individual appointment. Consider us your Carroll County insurance experts!