Living Benefits: The Life Insurance You Can Use Before You Die

Most people think life insurance pays when you die. A policy with living benefits also pays while you are alive, if something serious happens to you. That is the whole idea, and it is the reason I put a term policy underneath almost every health plan I write.

What it actually is

It is a rider attached to a term policy. If you are diagnosed with a qualifying critical illness, become chronically ill, or are certified terminal, you can access a portion of your own death benefit as cash while you are still here. Depending on the carrier's rider, up to 90% of the death benefit can be accessed for a critical or terminal claim.

The money is yours. It is not paid to a hospital and it is not restricted to medical bills. It covers the deductible, the max out of pocket, the mortgage, and the income that stops the day treatment starts — which is the part a health plan was never designed to replace.

The 15 conditions that can trigger a critical illness claim

• Invasive life-threatening cancer
• Stroke
• Major heart attack
• End stage renal failure
• Major organ transplant
• Amyotrophic lateral sclerosis (ALS)
• Blindness due to diabetes
• Paralysis of two or more limbs
• Major burns
• Coma
• Aplastic anemia
• Benign brain tumor
• Aortic aneurysm
• Heart valve replacement
• Coronary artery bypass graft surgery

In California the cancer condition is defined as invasive or metastatic cancer. Every condition has a precise definition in the rider, and the definition in your contract governs a claim — not this list.

Three situations, not one

The catch, stated plainly

This is the part that gets skipped when someone is selling it to you, so here it is first:

• Taking money early reduces what your beneficiaries receive. It is your death benefit, paid sooner. It is not extra money on top.
• The maximum percentage differs by carrier, by which illness triggered it, and by state.
• Some riders reduce the payment by an actuarial discount and an administrative fee.
• Accelerated benefits may be taxable and may affect eligibility for programs like Medicaid.
• Which riders are offered, and what they cover, depends on the carrier and on your state.

Why I pair it with health coverage

A health plan handles the bills. It does nothing about the income that stops. If you are self-employed and you stop working for four months, no health plan in the country replaces that. A term policy with living benefits does, and for a healthy person in their thirties or forties it usually costs less per month than people expect.

Health questions apply, underwriting decides, and approval is never guaranteed. I will put the actual rider language in front of you before you sign anything.