Definition:

Term life insurance with living benefits is a type of term life insurance that includes riders allowing policyholders to access a portion of the death benefit while still alive under specific conditions, typically related to serious health issues. Term life insurance provides coverage for a set period (e.g., 10, 20, or 30 years) and pays a death benefit to beneficiaries if the policyholder dies during that term. Unlike permanent life insurance, it doesn’t build cash value, but living benefits riders add flexibility by offering financial support during the policyholder’s lifetime.

Key Living Benefits Riders:

These riders, also called accelerated death benefit riders, enable early access to the death benefit for qualifying events.

Common types include:

Terminal Illness Rider: Allows you to withdraw a portion (or all) of the death benefit if diagnosed with a terminal illness and given a limited life expectancy (e.g., 12–24 months, depending on the insurer). Funds can cover medical bills, end-of-life care, or personal expenses. This rider is often included at no extra cost.

Chronic Illness Rider: Provides access to the death benefit if you’re diagnosed with a chronic illness that prevents you from performing at least two of the six activities of daily living (ADLs), such as bathing, eating, or dressing. This can help cover ongoing care costs.

Critical Illness Rider: Pays out a portion of the death benefit if you’re diagnosed with specific serious conditions like cancer, heart attack, stroke, or kidney failure. Coverage varies by insurer, and some limit claims (e.g., one per year per condition).

Long-Term Care Rider: Allows you to use the death benefit to pay for long-term care expenses, such as nursing home or in-home care, if you can’t perform ADLs. A licensed healthcare professional typically must confirm eligibility.

Disability Waiver of Premium Rider: Waives premium payments if you become totally disabled, keeping the policy active without further payments. This rider typically increases premiums by 10–25%.

How It Works

Eligibility: You must meet the insurer’s criteria, such as a medical diagnosis or inability to perform ADLs, and provide documentation (e.g., medical records).

Payout: Benefits may be paid as a lump sum or in installments, depending on the policy and rider. The amount accessed reduces the death benefit paid to beneficiaries.

Cost: Some riders, like terminal illness, are often included at no extra cost. Others, like chronic or critical illness riders, may add 5–15% to premiums. Term policies with living benefits are generally cheaper than permanent policies with similar features.

Advantages

Financial Flexibility: Provides funds for medical bills, lost income, or care costs during serious illness, reducing financial strain.

No Repayment: Unlike loans, accessed benefits don’t need to be repaid, though they reduce the death benefit.

Affordability: Term policies are less expensive than permanent ones, making living benefits more accessible.

Considerations

Reduced Death Benefit: Using living benefits decreases the payout for beneficiaries, which could impact their financial security.

Eligibility Restrictions: Strict criteria (e.g., specific diagnoses or ADL limitations) may limit access.

Not Always Included: Riders must often be added at purchase, as they’re rarely available to add later.

Cost Increase: Optional riders can raise premiums, though less than permanent policies with cash value.

Who Might Benefit?

People with a family history of serious illnesses (e.g., cancer, heart disease). Primary earners or self-employed individuals needing financial protection against health-related income loss. Those without separate long-term care or critical illness insurance.

Unlike permanent life insurance, term policies don’t offer cash value as a living benefit, so benefits are solely through riders. Always review policy terms to understand eligibility, payout limits, and impacts on the death benefit.