Most people think of life insurance as money that shows up after they’re gone. Living benefit life insurance flips that. It lets you tap part of your own death benefit while you’re alive if you’re hit with a serious illness, so the policy helps with the medical bills, the lost income, and the care costs that pile up before the end, not just the expenses afterward.
If you own a policy, you may already have this and not know it. If you’re shopping, it’s one of the most useful features to ask about. Here’s how it works.
What is living benefit life insurance?
Living benefit life insurance is a life policy with one or more riders that let you receive part of the death benefit early if you’re diagnosed with a qualifying condition. The money comes out of the face amount, so whatever you use is subtracted from what your beneficiaries receive later. The benefit is that it arrives when you need it most, while you’re still here to decide how it’s spent.
“Living benefits” is the umbrella term. The specific features go by a few names:
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Accelerated death benefit (also called a terminal illness rider): pays a portion of the death benefit, often up to fifty percent or more, if a doctor certifies a life expectancy of roughly twelve to twenty-four months. This is the most common living benefit and is included at no extra cost on many policies.
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Chronic illness rider: pays if you can no longer perform a set number of daily living activities on your own, such as bathing, dressing, or eating, or if you have severe cognitive impairment.
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Critical illness rider: pays a lump sum on diagnosis of specific conditions such as heart attack, stroke, cancer, or organ failure.
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Long-term care rider: pays a monthly amount toward home care, assisted living, or nursing care, drawn from the death benefit.
The exact triggers, waiting periods, and payout limits are spelled out in the rider, and they differ by company. Read that page of the policy, or ask us to.
Does Erie life insurance have living benefits?
Yes. Erie Family Life offers an accelerated death benefit and a long-term care rider on many of its life insurance policies, along with a guaranteed insurability option that lets you add coverage later without a new medical exam. Which riders are available, and whether they’re included or added for a premium, depends on the policy type and your age at purchase. When we quote a policy, we’ll show you exactly which living benefits are on it.
How does an accelerated death benefit work?
If you’re diagnosed with a qualifying illness, you or your representative file a claim with the doctor’s certification. The insurer pays a portion of the death benefit as a lump sum or in installments. You can spend it on anything: treatment, travel to a specialist, paying off the house, or simply keeping the household running while you’re not working. When you pass, your beneficiaries receive the remaining death benefit, minus what you used and, in some policies, a small administrative fee or interest charge.
One important detail: accelerating the benefit is optional. Filing a claim doesn’t obligate you to take the money, and many families choose to take only what they need.
Are living benefits taxable?
Generally, no. Under federal law, accelerated death benefits paid because of terminal or chronic illness are treated like death benefits and are excluded from income, provided the payment meets the tax code’s requirements. Critical illness lump sums and some long-term care payouts have their own rules, so check with a tax advisor for your situation. We cover the broader question in is life insurance taxable.
Is living benefit life insurance worth it?
For most families, yes, especially when the accelerated death benefit is included for free. It costs nothing and turns a policy into a safety net for the worst year of your life instead of only the year after it. Paid riders, such as long-term care or critical illness, are worth a closer look if you don’t have separate disability or long-term care coverage, if you’re self-employed, or if a serious illness would mean your spouse has to leave work to care for you.
The tradeoff is straightforward: any benefit you use during your life reduces what your family receives later. If the death benefit is sized tightly to a mortgage or income replacement, using a large share of it early leaves a gap. That’s a reason to size the policy with living benefits in mind, not a reason to skip them.
How to check whether your policy has living benefits
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Find your policy’s rider pages, usually near the back, and look for “accelerated,” “terminal illness,” “chronic illness,” or “long-term care.”
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Note the trigger, the maximum percentage, and any fee.
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If you have coverage only through work, check the group certificate; some employer plans include an accelerated benefit, many don’t, and it ends when you leave the job.
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If your policy has none, ask whether a rider can be added, or whether a new policy makes more sense.
We do this as part of a policy review for existing clients, including policies we didn’t write.
Talk to a Garner agent
Bailey Insurance Agency writes Erie life insurance for families across Garner, Clayton, Raleigh, and Johnston County, and we’ll walk you through which living benefits come with the policy you’re considering. Call our Garner office or request a quote online.
