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Is Life Insurance With Living Benefits Worth It?

Life insurance is the sort of product most people invest in because they want a certain amount of money to go to their loved ones once they pass away. However, you can actually make use of life insurance while still alive. Below we’ll look at what life insurance with living benefits all entails and whether it fits in with your financial goals.

What is Life Insurance with Living Benefits?

This term covers benefits on the policy you can use while you’re still alive.  

One of the most common life insurance with living benefits features is the cash value component. This is a sum of money that builds on the policy itself. It usually increases at a set time or growth is tied to markets or investments. Whole life, indexed universal life and variable universal life are all examples of life insurance types with cash value. You can then borrow or withdraw against that cash value while still alive, making it a living benefit.

Another key life insurance with living benefits feature is the living benefits riders. These are additional coverages on your main policy that give you added benefits and protection. These may or may not come with an added cost.

Many of these riders allow you to use the money in the policy in case of terminal illness, having chronic disease, becoming disabled, or other emergencies while still alive. For instance, one common example of these riders is the accelerated benefit rider for terminal illness, which allows a portion of the death benefit to be paid out if the insured has a terminal illness.

Pros and Cons of Life Insurance with Living Benefits

Having life insurance with living benefits has a number of advantages, but there are also risks to be mindful of.

Pros:

  • Being able to use your death benefit or cash value while still alive allows for increased financial security.
  • Having benefits you can still use while alive can supplement other savings.
  • Riders that help you access cash in the case of an emergency can lead to greater peace of mind.

Cons:

  • Most people buy life insurance because they want a death benefit to go to their beneficiaries after they die, so having life insurance with living benefits may lead to too much of a temptation to use that money outside of its intended purpose.
  • Depending on how the plan is structured, if you pull too much out of the cash value or death benefit while still living, that could raise your premiums or reduce your death benefit or even cause your policy to lapse.

Who is Life Insurance with Living Benefits For?

Anyone who wants the financial peace of mind in knowing they can pull money out of their life insurance policy while still living may want to look into life insurance with living benefits.  

Some of the cases this may be especially relevant include:

  • You have a personal or family history of medical problems and want that safety net.
  • You want to build cash value on your life insurance policy that you can later use to supplement savings like retirement or a college fund.

Overall, if you want to use a life insurance policy beyond the death benefit, living benefits are good to look into.

How Much Does Life Insurance with Living Benefits Cost?

Many living benefits are built into the policy costs themselves. For instance, a policy with cash value tends to be more expensive than one without, which you can see below:

Cash value policies:Monthly PremiumsDeath Benefit
Whole Life$234$150,000
Indexed Universal Life Policy$210$150,000
Variable Universal Life Insurance Plan$230$150,000
Non-cash value policies:
Guaranteed Universal Life$115.52$150,000
Term Life Insurance$212$250,000

Term life is in line with the monthly premiums of the cash value policies, but it also allows for $250,000 in a death benefit instead of $150,000.

As mentioned above, riders can be at an additional cost or included in the policy. It’s important to talk with an agent about what your options are and which products these riders can be added to and how they work, as this can change drastically from company to company.  

For instance, with Nationwide, the accelerated death benefit rider can be added to term, whole, universal and variable policies. The terminal illness rider through AIG allows you to pull up to 50 percent of your death benefit (not exceeding $250,000) in case of terminal illness, however, it comes with a one-time administrative fee that does not exceed $250.     

Final Thoughts

Life insurance with living benefits can be useful in case you want to use the money in an emergency or supplement savings. However, if your goal is to just focus on the death benefit, this might not be the option for you. Life insurance with living benefits can be more expensive. However, it offers that financial safety net while still living.

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