Understanding Whole Life Insurance with Living Benefits

Understanding Whole Life Insurance with Living Benefits

The popular benefit of buying a life insurance policy is to get death benefits for final expense coverage when the policyholder dies. That indeed is the dominant feature of the policy but there is another component known as living benefits. These are the funds that the insured receives while they are still alive and some calamity has stricken them. The living benefits is the lump sum of money that the policyholder receives when he or she suffers from a chronic illness, terminal illness, or requires long-term care. 

The truth of the matter is that it is challenging to internalize that a serious illness could happen to one when he is physically fine and mentally doing well. But the data shows that around 40% of people will be diagnosed with cancer once in their lifetime and the stats from the American Society of Clinical Oncology suggest that cancer treatment cost around $20,000 to $30,000 a year which is equal to about half of the average annual U.S household income. The U.S. Department of Health and Human Services informs us that there is a 70% chance that an average 65-year-old will need long-term care services. 

A life insurance policy with living benefits is crucial in this situation. With whole life insurance with living benefits, you lock in financial protection in all these potential circumstances. 

What are Life Insurance Living Benefits

Living benefits come in the form of life insurance riders attached to a life insurance policy. This lump sum money allows the policyholder to get cash in need when they are still alive. The trade-off however is that accessing living benefits will reduce the amount of death benefit to your beneficiaries. 

Following are the common life insurance benefits you can get from life insurance:

  • Terminal illness

This rider provides funds in your policy if you receive a terminal diagnosis that shortens your life expectancy to two years or less than that, depending on the policy. With this rider, your beneficiaries may cover final expenses or you can use it for other expenses in your life life. For instance, if you are health-conscious and want to vacation to a place you always wanted to, this will pay for your vacation. 

Many insurers add this rider automatically to the policy. However, you have to see if there is a waiting period on the policy. This means that you can access the benefit for a specified amount of time. A death benefit will be deducted if your vacation expenses exceed the rider cost. 

  • Critical illness

Critical illnesses such as heart attack, stroke, and kidney failure require long-term care and expensive treatment. Medical expenses associated with these qualifying illnesses that can shorten your life expectancy will be covered by critical illness riders. 

  • Chronic illness

If you are unable to do at least two of the six “activities of daily living” (ADLs), which include eating, bathing, getting dressed, using the bathroom, continence, and transferring, you qualify for this rider. If the cost of this care exceeds the death benefit, the beneficiaries will lose some of the benefits in return.

  • Return of the Premium Rider

This is a special sort of term policy that, if you don’t reach death during the term (in which case the death benefit is paid out in its place), restores the premiums you paid at the conclusion of the policy’s term. This kind of term life insurance might cost much more than a standard term policy.

  • Disability waiver of premium

In the event of a covered accident or sickness that prevents you from working, this rider enables you to cease paying premiums while maintaining insurance coverage.

Whole Life Insurance with Living Benefits 

A whole life insurance policy offers most of the optional riders noted above. However, it also has a key feature that term life does not provide: cash value. So while whole life insurance is typically more expensive than term, most of the cost difference is because premium dollars can contribute to a policy’s cash account. This is where it grows tax-deferred, helping your family build wealth.

Cash value usually takes a few years to grow into a usable sum, but once that happens, it can become a financial asset with many advantages. Generally speaking, there are four ways to access life insurance cash value:

Surrender to the Policy

While canceling your policy and taking the cash surrender value payment is an option, it is not advised. This is because you will lose your life insurance protection and may be subject to significant surrender fees and/or taxes. However, there are other ways to access those funds.

Take loans.

You can utilize the cash value of your policy to guarantee a loan that increases at the agreed-upon fixed or variable interest rate. There is no application or credit check, and rates may be competitive or even lower than personal loan rates. Even if you decide not to repay the loan, your death benefit will often be reduced to cover the remaining loan sum.

Withdraw cash from

You can easily take money out of your permanent life insurance policy. As long as it doesn’t exceed what you contributed to the insurance, the money is usually exempt from taxation. However, depending on the conditions of your policy, the death benefit will probably be decreased. That reduction may even be greater than the amount taken.

Pay your Life Insurance Premium

After you retire, do you want to stop paying premiums? It is sometimes more convenient to maintain your cash value insurance coverage if you use the funds in your cash account to pay all or a portion of your premiums.

Additional Cost of Whole Life Insurance with Living Benefits

Your life insurance coverage may come with living benefits at no extra cost. For instance, term life insurance contracts sometimes come standard with a terminal illness rider at no extra cost. If there is a fee or a critical illness or chronic illness rider, ask your insurance representative.

How to Get Whole Life Insurance with Living Benefits

When looking for a policy, inquire with insurance companies about your options if you’re interested in adding living benefits to your coverage. When you buy a life insurance policy, it’s a good idea to choose a living benefits rider. Additionally, many plans automatically include at least one living benefits rider, such as death insurance.

However, it could be conceivable to include a living benefits rider in the future. Additionally, there may be a waiting period during which you cannot receive living benefits. You can submit a claim and, if qualified, access your benefits after the waiting time has passed.

Frequently Asked Questions

What advantages does whole life insurance with living benefits offer?

A: There are several advantages to whole life insurance with living benefits, including:

  • Guaranteed death benefit: The death benefit is unaffected by market circumstances and guaranteed for the policy duration.
  • Accumulation of cash value: A portion of the premium is designated for cash value accumulation, which may be utilized to defray premium expenses.
  • Money availability: While still living, the policyholder may obtain a portion of the death benefit. This can be utilized for a range of needs, including retirement income, long-term care, or debt repayment.

What are the requirements for Whole Life Insurance with Living Benefits?

A: Depending on the insurer, the criteria for a Whole Life Insurance with Living Benefits policy will vary. In general, the policyholder must be healthy and at least 18 years old. They can be asked to present documentation of their medical history, such as records of doctor visits and hospital stays. Additionally, the policyholder will have to present identification and financial capability proof.

What Is the Price of Whole Life Insurance with Living Benefits?

A: A number of variables, including the policyholder’s age, health, lifestyle, and the amount of the death benefit, will affect the price of a whole life policy with living benefits. In general, this type of coverage has higher rates than conventional whole life insurance.