What are Living Benefit Life Insurance Riders?
Some life insurance riders let you access a portion of the policy’s value during life under special circumstances. These “living benefits” or “accelerated benefits” typically kick in if the insured person develops serious health complications that put would them and their family under financial strain. Because of the lifetime financial security they offer, experts often rank living benefits among the best or most important riders to add to your policy.
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
There are a handful of living benefit riders that can be added to your policy for an extra cost (though whether or not they’re available will vary by provider). Each different rider covers a unique set of circumstances; some might take effect if you receive a serious medical diagnosis, others if you require long term care later in life, and so on.
In almost every scenario where a living or accelerated benefit kicks in, the funds provided are subtracted from the policy’s overall death benefit. That means if your life insurance does eventually pay out, it will be less the difference.
If you access your life insurance early through an accelerated benefit rider, the funds will be taken out of your policy’s overall death benefit.
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 $650,000 death benefit payment rather than the original $750,000.
Examples of Living Benefit Riders
Accelerated death benefit
Accelerated death benefit (ADB) riders let you access a portion of your policy’s death benefit during life to cover medical expenses; think hospital bills, medication, in-home care, and other costs associated with a terminal illness. The amount of money available through an ADB rider varies by company and policy — it might offer anywhere between 25% and 90% of your policy’s overall value.
Each life insurance company also has unique requirements about when ADB benefits can be accessed. Generally, the insured person must be diagnosed with a terminal illness and given a one- to two-year life expectancy before they can tap into their policy’s funds.
Note that many companies charge an administrative fee when paying out on ADB riders. Like the benefit itself, this fee will be taken out of the policy’s face value; so if someone accesses $100,000 through ADB, with a $1,000 administrative fee, the eventual death benefit payout will be $101,000 less than the original value.
Critical illness riders
Critical illness riders are a subset of accelerated death benefit riders. Like ADB, they take funds from the death benefit to cover expenses stemming from a serious or terminal health issue. However, the conditions that qualify for early withdrawal through a critical illness rider are a little more clearly defined. “Critical illness” often applies to a specific diagnosis like cancer, heart attack, stroke, or major organ failure. The exact list of conditions that will trigger a critical illness rider varies by insurance company.
Long term care riders
Long term care (LTC) riders offer financial support if the insured person becomes unable to take care of themselves and requires extensive caretaking later in life. Generally, an LTC rider will kick in when the insured person can no longer perform a certain number of daily activities on their own (like bathing, dressing, eating, or moving about the house). It then forwards a portion of the death benefit to pay for things like in-home nursing or an assisted living facility.
Be aware that while some companies offer LTC as a true rider, others require you to purchase it as a standalone policy separate from your life insurance. Purchasing long term care as a standalone product can be more expensive and harder to qualify for than a rider; so if this option is important to you, be sure to shop around for the coverage you need at a fair rate.
Disability income riders
Disability income riders offer a stipend to cover living costs and medical bills if a disability means the insured person can no longer work. This is meant to lessen the impact of the policyholder losing their former salary. For that reason, a disability income rider usually also excuses premium payments.
Payments from a disability income rider are set as a percentage of your policy’s face value (generally between 1 – 2%) and paid monthly. So, for example: If your policy is worth $500,000, and you activate a disability income rider set at 1%, you could be paid a stipend of $5,000 per month to supplement your family’s income.
It’s worth noting that the insured person’s disability has to be either long-term or permanent for them to tap into disability income. To make sure this is the case, insurance companies impose a waiting period before disability benefits kick in — often around six months.
Where to Find Living Benefit Riders
Some companies offer living benefits with term life insurance, though they’re more commonly bought with permanent or whole life policies. This is because permanent life policyholders will be covered into old age and are more likely to develop health complications that would require a financial backup plan.
Life insurance experts we’ve spoken to over the years recommend looking into premium waivers, long-term care, and accelerated death benefit riders. That’s why we required all three when we chose the best whole life insurance companies. Learn more about the best whole life companies and their rider options.