What are Living Benefit Life Insurance Riders?
“Living benefit” riders are provisions on a life insurance policy that let you access part of the death benefit while you’re alive if certain health conditions are met. In life insurance, the most common categories are: (1) terminal illness accelerated death benefit (ADB) riders under IRC §101(g); (2) chronic illness ADB riders under §101(g); and (3) tax‑qualified long‑term care (LTC) riders under IRC §7702B. As of 2025, terminal‑illness ADB riders are nearly universal on term and permanent policies, chronic‑illness ADBs are widely (though not universally) available, and true §7702B LTC riders remain more limited and state‑sensitive (NAIC; Prudential; Lincoln; Nationwide; Legal & General America). In annuities, “living benefits” usually refers to guaranteed lifetime income riders (GLWBs) that provide lifetime withdrawals for a fee rather than LTC‑style benefits (Allianz; Athene); current research shows owners commonly initiate GLWBs at older ages and draw at rates near the contract’s guaranteed percentage (Ruark 2024).
Need more info on riders in general? Start here for an overview of what life insurance riders are, how they work, and the different options available to you.
How Living Benefit Riders Work
Availability and terms vary by provider and state approval. A 2025 snapshot: terminal‑illness ADB riders are commonly embedded at no additional premium, typically triggered by a physician certifying life expectancy of 12 or 24 months (state‑specific). Chronic‑illness ADB riders (also §101(g)) generally require substantial assistance with at least two of six Activities of Daily Living (ADLs) or severe cognitive impairment, often use a discount‑at‑claim design with no ongoing charge until exercised, and are broadly available on permanent life. Tax‑qualified §7702B LTC riders function as LTC insurance for tax/regulatory purposes, have explicit charges, and pay periodic reimbursement or indemnity benefits when ADL/cognitive triggers are met (Prudential; Lincoln; Nationwide; NAIC).
When a living benefit is paid, the policy’s future death benefit is reduced. Insurers apply either an actuarial discount or a lien: your payout is net of discount/interest and any permitted admin fee, or a lien is recorded and recovered from the death benefit at claim. Many states allow a modest administrative fee (often up to $250) that is usually deducted from the benefit you receive or reflected in the discount/lien formula, rather than taken as a separate, direct subtraction from the “face value” (NAIC Model #620; Washington OIC; Insurance Information Institute). For taxes, terminal and chronic‑illness ADBs can be excludable from income if IRS conditions are met (including per‑diem caps for certain benefits), and §7702B LTC benefits are intended to be tax‑free up to the greater of actual qualified LTC expenses or the IRS per‑diem limit (IRS Publication 525; IRS Publication 502; 26 U.S.C. §7702B).
If you access your life insurance early through an accelerated benefit rider, the benefit reduces the death benefit via a discount or lien calculation, and any allowed admin fee is typically netted from the payout or reflected in that calculation.
For example: Say an individual is covered by a whole life insurance policy worth $750,000 with a critical illness rider included. Over the course of the policy, they end up tapping into that rider for $100,000 to treat a heart condition. After that person passes away, their beneficiaries would receive a death benefit reduced by the accelerated amount plus any applicable discount/interest and admin fee, consistent with the rider’s method (discount or lien) and state rules (NAIC Model #620).
Examples of Living Benefit Riders
Accelerated death benefit
Accelerated death benefit (ADB) riders for terminal illness allow early access to a portion of the death benefit, often at no additional premium until used. Typical triggers require physician certification of a life expectancy of 12 or 24 months (varies by state). Many carriers cap acceleration to a percentage of the face amount (commonly 50%–90%) and/or a dollar maximum, with a residual death benefit preserved (Legal & General America; NAIC). Benefits are generally paid as a discounted lump sum or as periodic payments; tax treatment aims to align with IRS rules for terminally ill individuals (IRS Publication 525).
Insurers may assess a modest administrative fee when an ADB is exercised. By regulation, the fee is typically deducted from the payment you receive or included in the lien/discount that reduces the remaining death benefit rather than taken as a separate, standalone cut from the policy’s face value (NAIC Model #620; Washington OIC; III).
Critical illness riders
Critical illness riders accelerate part of the death benefit upon diagnosis of specified conditions (e.g., cancer, heart attack, stroke, major organ failure). Covered conditions, definitions, waiting periods, and payout structures are set in the rider and vary by insurer and state. Like other ADBs, payments reduce the policy’s remaining death benefit and may be paid as a lump sum or installments; review the contract for covered diagnoses and any recurrence limits (NAIC).
Long term care riders
Long term care (LTC) riders attached to life insurance can be structured as tax‑qualified §7702B riders (treated as LTC insurance) or as §101(g) chronic‑illness accelerations that are not LTC insurance. §7702B riders generally: (a) trigger when you need substantial assistance with at least two of six ADLs or have severe cognitive impairment; (b) pay reimbursement or indemnity cash benefits; and (c) carry an explicit charge. Many designs accelerate the death benefit first and may add an “extension of benefits” layer that continues LTC payments after the death benefit is exhausted. Availability and terms are state‑specific; leading carriers publish detailed rider brochures and state variations (Lincoln; Nationwide; NAIC; IRS Publication 502; §7702B).
Claims and payouts are real and meaningful at older ages: the Society of Actuaries’ 2024 U.S. Individual Life Combination Products Experience Study reports that claim incidence rises steeply with age, and products that include an extension‑of‑benefits layer deliver higher average total benefits per claimant than acceleration‑only designs (SOA 2024). Industrywide LTC experience data also show continued growth in total incurred and paid LTC claims, underscoring the scale of functional‑impairment payouts in the U.S. (NAIC LTC Experience).
How riders compare with standalone LTC: traditional standalone LTC insurance often provides the most LTC benefit per premium dollar but can face regulator‑approved class rate increases and is commonly “use‑it‑or‑lose‑it.” Life/annuity hybrids with §7702B riders typically offer guaranteed premiums/charges and retain value if care is never needed, but yield less pure LTC leverage and may lack Medicaid Partnership eligibility. Key differences include funding (single‑pay/limited‑pay vs. annual), inflation options, elimination periods, and whether benefits are reimbursement or indemnity cash (NAIC LTC Consumer Guide; IRS Pub 502; Genworth Cost of Care; LIMRA).
Disability income riders
Disability income riders can provide a monthly income if you meet the policy’s disability definition, often alongside a waiver‑of‑premium feature. Benefits are typically a fixed monthly amount (or a percentage subject to caps), paid after an elimination period (commonly several months). Definitions, waiting periods, and which charges/premiums are waived vary by insurer; review the rider for occupation definitions, maximum benefit periods, and coordination with other disability coverage (FINRA investor education).
Where to Find Living Benefit Riders
Living benefits may be available on both term life insurance and whole life insurance policy. In today’s market, terminal‑illness ADB riders are close to standard on many policies, chronic‑illness ADBs are broadly offered (especially on permanent life) with either discount‑only or explicit‑charge designs, and true §7702B LTC riders are more limited and state‑dependent. Separately, hybrid life/LTC products continue to see strong consumer demand and growing sales activity (Nationwide; LGA; LIMRA).
Before adding a rider, use a best‑practices checklist: confirm the rider type (101(g) chronic‑illness vs. 7702B LTC); ask whether the payout is discount‑based or via lien; note any minimum residual death benefit; compare elimination periods and maximum monthly benefits; check for inflation options on LTC‑type benefits; verify state‑specific trigger definitions (e.g., 12 vs. 24‑month terminal expectancy); and review tax treatment and IRS per‑diem limits for applicable benefits. Request side‑by‑side illustrations with and without riders, and vet the insurer using regulator tools (NAIC accelerated benefits; Administration for Community Living; IRS Pub 525; NAIC company lookup; FINRA).