Knowledge Center
Insurance Resources
Educational guides and tools to help you make informed decisions about your insurance and financial future.
Living Benefits
Living Benefits, also known as Accelerated Benefits, are provisions in a life insurance policy that allow a policyholder to access a portion of the policy's death benefit while they are still alive, if certain qualifying conditions are met.
Living benefits have traditionally been associated with permanent life insurance policies. However, many term life insurance policies today can also include living benefit provisions, although term policies generally do not accumulate cash value.
The purpose of living benefits is to provide financial support to policyholders who experience certain serious medical conditions or circumstances. Depending on the insurance company and policy provisions, benefits may be available in cases of terminal illness, chronic illness, or critical illness or injury.
When a policyholder meets the requirements specified in the policy, they may elect to accelerate a portion of their death benefit and receive the funds during their lifetime. The amount accelerated is generally deducted from the death benefit that would otherwise be paid to beneficiaries after the policyholder's death.
Overall, living benefits can give policyholders access to financial resources during a serious health event, rather than requiring them or their families to wait until death for the life insurance benefit to be paid.
Common forms of living benefits include:
- Cash Value
Available primarily with permanent life insurance policies and may be accessed through withdrawals or policy loans, subject to the policy's terms.
- Terminal Illness Benefit
Allows the policyholder to access a portion of the death benefit after being diagnosed with a qualifying terminal illness.
- Chronic Illness Benefit
May allow access to a portion of the death benefit when the policyholder meets the policy's definition of a qualifying chronic illness.
- Critical Illness/Injury Benefit
May provide access to benefits following certain qualifying critical illnesses or injuries, as defined by the insurance policy.
Cash Value in Permanent Life Insurance
Cash value is the portion of a permanent life insurance policy that can accumulate money over time. One way to potentially build cash value faster is to pay more than the required/scheduled premium, depending on the type of policy and its terms.
As the cash value grows, the insurance company may credit interest or dividends, depending on the policy. Once sufficient cash value has accumulated, you may be able to access it in several ways.
Partial withdrawals
You can withdraw some of the cash value. If the withdrawal is not repaid, it may reduce the policy's death benefit, meaning the beneficiary could receive less money when the insured dies. Some policies may also allow cash value to help pay premiums once enough value has accumulated.
Borrow against the cash value
You can take a policy loan using the cash value as collateral. The insurance company charges interest on the loan, and the interest rate and repayment terms depend on the policy. If the loan and interest remain unpaid, they can reduce the death benefit and potentially cause the policy to lapse.
Surrender the policy
You can withdraw the policy's available cash surrender value and terminate the policy. This ends the life insurance coverage. If the policy is surrendered during its early years, surrender charges may significantly reduce the amount you receive.
Important: Cash value is not necessarily a separate savings account. How it grows depends on the type of permanent life insurance — such as whole life, universal life, or variable life — and the specific policy provisions.
Living Benefits
Living benefits allow the policy owner to receive some of the life insurance death benefit while they are still alive if certain serious medical conditions occur.
Terminal Illness
Available when a doctor certifies that you have a terminal illness expected to result in death within a specified period, commonly 12 months (24 months in some states).
- Often available at no additional cost.
- You may be able to access up to 90% of the death benefit, depending on the insurer and policy.
- The money can be used however you choose, such as medical expenses, living expenses, paying debts, or financially preparing your family.
- You generally need a physician's certification.
- Taking the entire accelerated benefit may leave little or no death benefit for beneficiaries.
Terminal illness — access death benefit early because death is expected soon.
Critical Illness/Injury
This benefit allows you to accelerate part of your death benefit if you experience a specific serious illness or injury listed in the policy.
- You must meet the policy's specific definition of the illness or injury.
- A physician generally must certify the condition.
- You may be able to access up to 90% of the available death benefit, depending on the insurer.
- The money is generally paid directly to you and can be used for any purpose.
- Taking only part of the benefit can allow the policy to remain in force, with a reduced remaining death benefit.
- Taking the entire available benefit may result in policy termination, depending on the contract.
Critical illness — specific serious illness/injury — accelerate part of death benefit.
Chronic Illness
A chronic illness benefit allows you to access part of your death benefit when you become chronically ill and meet the policy's requirements. A common requirement is being unable to perform at least 2 of the 6 Activities of Daily Living (ADLs) without substantial assistance: 1. Bathing 2. Continence 3. Dressing 4. Eating 5. Toileting 6. Transferring A physician generally must certify that you meet the definition of chronic illness under the policy. The benefit can help pay for things such as: • Nursing-home care • Home health care • Long-term care • Other living expenses
Chronic illness — inability to perform qualifying daily activities — access death benefit early.
Waiver of Premium (WP)
Waiver of premium is different from the three benefits above because it does not give you an advance of the death benefit. Instead, if you become totally disabled and satisfy the policy requirements:
- You no longer have to pay the required premiums.
- Your life insurance coverage remains in force.
- This prevents the policy from lapsing because you can no longer afford the premiums.
- It generally costs an additional premium.
- There is usually a waiting/elimination period before the benefit begins.
Total disability — premiums are waived — life insurance stays active.
Quick Comparison
| Benefit | Trigger | What happens? |
|---|---|---|
| Terminal Illness | Expected death within specified period | Accelerate part of death benefit |
| Critical Illness/Injury | Specific serious illness/injury | Accelerate part of death benefit |
| Chronic Illness | Qualifying chronic condition/ADL impairment | Accelerate part of death benefit |
| Waiver of Premium | Total disability | Future premiums are waived |
Long-Term Care Insurance
With Americans living longer than ever, planning for long-term care has become an important part of preparing for the future. As we age, traditional health and life insurance may not cover all of the services and support we may eventually need. Long-Term Care Insurance (LTC) can help provide financial protection and peace of mind when age, illness, injury, or cognitive impairment makes it difficult to care for yourself independently.
Long-Term Care Insurance helps cover eligible long-term services and supports for individuals who develop a qualifying chronic illness or disability. Depending on the policy, coverage may help pay for care received at home, in an assisted living facility, or in a nursing home. Benefits may also include assistance with everyday activities such as bathing, dressing, eating, and other personal-care needs.
Long-term care coverage can be costly, with premiums generally influenced by factors such as age, health, gender, and the amount and type of coverage selected. However, planning ahead may help reduce the potential financial burden that long-term care expenses can place on you and your family.
A Long-Term Care Insurance plan can help protect your financial future by providing benefits for eligible expenses associated with:
- Home Care
- Assisted Living
- Adult Day Care
- Hospice Care
- Nursing Home Care
- Respite Care
Eligibility for long-term care benefits depends on the specific policy and may require meeting certain conditions related to your health and ability to perform activities of daily living. Certain pre-existing health conditions may affect eligibility or the availability and cost of coverage.
In general, purchasing coverage while you are younger and in better health may provide more options and may result in lower premiums, subject to the insurance company's underwriting requirements.
Planning for long-term care is an important financial decision. Speak with one of Phanald IT insurance professionals to learn more about Long-Term Care Insurance, available coverage options, and how a plan may fit into your overall financial strategy.
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