What Are 'Living Benefits' on a Life Insurance Policy?

Life insurance can provide many solutions for you, and it’s an important part in creating a secure financial plan. Most importantly, it provides a death benefit when your family may need it most. Life insurance can also offer additional benefits for you while you’re still living. 

Fixed Universal Indexed Life insurance products can offer lifelong flexible protection and important features. These features could include things like tax benefits. For example, there could be tax-deferred growth potential on your account, as well as insurance benefits that are generally not subject to income tax.

You could have a choice in death benefit options, like the face amount of your policy or the face amount plus your account value. You could have death benefits taken as a lump sum or as periodic payments. You may also adjust the death benefits.

You can choose from several options for earning interest on your account value: one fixed interest option or additional options tied to market indexes. All of the options have a minimum guaranteed rate.

You also may withdraw money at any time after year one. These withdrawals are subject to surrender charges.

Last but not least, you can customize your life insurance policy with a wide array of optional rider benefits to suit your family’s needs. The rider benefits do have limitations, restrictions and, in some cases, additional charges. Be sure to discuss all of these features and options with your financial or insurance professional to know what can work for your specific situation.

What is an "accelerated death benefit rider?

Accelerated death benefit riders, offered with life insurance, give you access to your death benefit when certain conditions are met. You may hear “accelerated death benefit riders” referred to as “living benefit riders” because they protect you while you’re still alive.

There are three living benefit riders on an F&G FIUL policy. These are defined conditions, and the benefits and availability may vary by state. You can find examples of each condition later in this post.

Critical Illness

This benefit allows the acceleration of up to 100% of your policy’s death benefit, not to exceed $1,000,000 if the insured suffers from a covered critical illness. It covers a heart attack, stroke, major organ transplant, paralysis, diagnosis of Amyotrophic Lateral Sclerosis (ALS), arteria aneurysms, central nervous system tumors, significant burns, an end-stage renal failure diagnosis and invasive cancer.

Terminal Illness?

If a physician diagnoses you with a terminal illness that results in a life expectancy of less than 24 months, this rider allows the acceleration of up to 100% of the policy’s death benefit, not to exceed $1,000,000.

Chronic Illness?

This rider may accelerate up to 25% of your policy’s death benefit if the primary insured is certified by a licensed health care practitioner in the previous 12 months as having a qualifying chronic illness. A qualified chronic illness is defined as being unable to perform two out of the six activities of daily living (ADLs) or requiring supervision because of severe cognitive impairment. This rider does not terminate after the initial acceleration. Subsequent annual accelerations are available, upon continued qualification, until you accelerate either 100% of the death benefit or the lifetime maximum of $1,000,000.

The accelerated amount is paid prior to death, so the amount paid will be less than the amount accelerated. The policy death benefit will be reduced by the amount accelerated.

How do living benefits work?

Let’s look at an example of each kind of living benefit, or accelerated death benefit.

Chronic Illness Rider

John | Issue age: 40

John purchases an life insurance policy and at age 68, is diagnosed with invasive cancer. His life insurance policy includes a benefit for critical illness. He chooses to exercise part of his death benefit through the critical illness rider to help cover expenses while he continues treatment.

Let’s take a look at the potential benefit he receives:

The benefit amount is determined by the severity of his illness and the impact on future life expectancy and is reduced by an administrative fee and an actuarial discount as outlined in the rider. Hypothetical assumptions based on issue age 40, initial face amount $400,000 at issue level death benefit, critical illness of lung cancer severity level three. Jeffrey exercised 90% of benefit at age 68. If your client chooses to accelerate the critical illness rider, both the terminal illness and chronic illness riders terminate.