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Living benefits policies could help you maintain your standard of living if you are unable to work due to an accident or illness. These benefits could help protect you and your loved ones from financial hardship if the unexpected happens.
Of course, you may have health insurance to pay for medical costs, but how would you finance your everyday life if you were unable to work? No one expects this hardship, but it is an unfortunate reality for many people.
The Social Security Administration estimates that just over one in four of today’s 20-year-olds will become disabled before the age of 67. And according to the Centers for Disease Control and Prevention, about 61 million adults in the United States live with a disability, which is about one out of every four American adults.
For many, living benefits offer added security in an uncertain world.
Living Benefits for Life Insurance
You may know life insurance offers a death benefit, but did you realize many policies also offer living benefits? Depending on your policy, you may be able to add a living benefits rider to your life insurance.
A living benefits provides an early payout of policy death benefits, if the insured is injured or has an illness. The amount that can be accessed depends on the type of contract. This payment, which is made to the policy owner rather than to the beneficiary, reduces any cash value that has built up on the policy and reduces the death benefit.
Term Life Insurance
Adding a living benefits rider to your term life policy could help if you are ever unable to work due to a non-life-threatening accident or illness. This rider could allow you to receive the death benefits of the policy while you are still alive, which could help you during a critical time.
Let's say you have a $100,000 death benefit through your term life insurance policy. A living benefits rider could allow you to collect a set amount of living benefits if you become unable to work. This money could help you pay for unexpected costs — and offer peace of mind for you and your loved ones.
Note that this would reduce the size of the death benefit. If you die, your beneficiaries would receive whatever is left of the death benefit. For example, if you remove $50,000 from your $100,000 policy, your family would receive the remaining $50,000 upon your death.
Permanent Life Insurance
Options for living benefits riders can be different for permanent life insurance, such as whole life or universal life. One reason for this is that permanent life insurance policies build cash value. So, if you buy a living benefits rider, some of that cash value may be payable to you as a living benefit. Many permanent life insurance policies pay living benefits in addition to the entire death benefit.
For example, let's imagine you have a death benefit for a permanent life insurance policy. Depending on your policy, your beneficiaries could receive the full value of your policy. However, any living benefits you received might reduce this payout. There are also riders that could allow policyholders to use living benefits for a variety of other purposes, including buying a home and paying for college tuition.
There are many uncertainties in life, but there are ways to protect yourself from the unexpected. Living benefits could offer additional security for you — and your loved ones — when you need it most.