A living benefit may let you receive part of your life insurance benefit early. This may be called an accelerated death benefit. It pays only if you meet the policy’s rules. Using it leaves less for the people who would receive money after your death.
Jump to five questions to askSource: NAIC: Life insurance benefits.
Which illnesses might qualify?
A rider is a part added to a policy. Some policies include one; others offer it as an option. A policy may cover only one of these situations. The names alone do not tell you what is covered.
Terminal illness
An illness expected to shorten your life. The policy sets how short that time must be. The company needs proof that you meet this rule.
Chronic illness
May involve needing help with daily tasks, such as bathing or dressing. The policy sets the exact rules and required proof.
Critical illness
A serious illness listed in the added benefit. It must meet the policy’s exact rules. Not every illness, or every stage of it, qualifies.
These features may be available with term or permanent life insurance. What is offered depends on the company, plan, and state.
Source: Guardian: Types of living benefits.
What happens to the money left for my family?
Ask the company to write down how much you would get now and how much would be left for your family. The two amounts may add up to less than the original benefit.
The added benefit may raise your insurance payment. It may also have a fee or a discount that lowers the amount paid early. Ask what happens to your future payments, cash value, and any policy loans. “Included” does not always mean there is no cost to using it.
Also check whether a payment could affect Medicaid or other public benefits before accepting it.
Source: Ohio: Accelerated-benefit disclosures and charges. The rules depend on your state and policy.
Three kinds of help that work differently
Living benefits and disability income
Disability income insurance can replace part of your pay if a covered illness or injury keeps you from working. An early life insurance payment has different rules about when it pays. Being unable to work does not, by itself, mean your life insurance will pay you.
Sources: Texas Department of Insurance: Disability insurance; NAIC: Accelerated death benefits.
Living benefits and long-term care
Do not assume an illness rider is long-term care insurance. Ask which type you are considering and what services or events it covers.
Source: Washington insurance regulator: How long-term care coverage differs.
Living benefits and cash-value loans
A policy loan is borrowing against available cash value in a permanent policy. It is different from an illness benefit. Loans charge interest. Unpaid loans and interest reduce what beneficiaries receive, and a growing balance can cause coverage to end. If coverage ends or you cancel it while a loan is still owed, you may also face a tax bill.
TAKE THESE TO YOUR REVIEW
Five questions worth asking
- Which riders are actually in my policy?
- What exact event qualifies, and what proof is needed?
- What would I receive after fees or discounts?
- What benefit and payments remain afterward?
- Could this payment affect taxes or public benefits?
Ask for answers tied to your contract. Use our free quote-comparison worksheet to keep the details together.
Sources: NAIC: Reading riders; Ohio: Benefit disclosures.
Common questions
Are living-benefit payments always tax-free?
Not always. Some early payments for terminal or chronic illness may not count as taxable income under federal rules. Conditions and limits apply. Ask a qualified tax expert about your payment before you accept it.
Does every life insurance policy include living benefits?
No. Check the policy and its riders. Two plans with similar names can offer different features.
What if I already have life insurance?
Start with the insurer’s policy-service team and ask for a list of your riders. Our policy checkup can help organize questions. If you need to file a claim, contact the insurer directly; a website inquiry does not start a claim.
About this guide
Published by Legacy Financial Group with help from AI and links to insurance regulator and company resources. This guide is for learning. It does not choose a policy for you or promise coverage or a paid claim. Your policy and state rules decide what applies.
Timmy is based in Huntington and helps families in WV, OH, KY, PA, SC, GA, and ME. Learn how Timmy works or find your state’s resources.