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Living Benefit Rider

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Term life living benefit rider

It's important to understand this distinction

The number of riders currently available on the market almost outnumbers the number of policies available.   In our view, most of these policy "add-ons" are pretty good at extracting extra premium for the carrier which would probably best be spent on either long term lengths or higher amounts of term life coverage.  The living benefit rider by just be an exception so let's take a look at how it works.

First a quick synopsis of what the living benefit rider actually does.  Essentially, this rider allows the policy holder (not the beneficiary) to receive some portion of the term benefit if diagnosed with a terminal illness.  It allows a person who has a limited time to live the ability to receive money while living.  So what gives...why would the carrier allow a policy holder this ability.  Well it's not altruism but it might work for all parties.  Keep in mind that the policy holder may only receive a portion of the total life policy value.  It's very similar to the common lottery ruse where you have win you're $5 million amount with 10 years of $500K each year or all up front for $3.8 million.  Most people will accept the $3.8 million because delayed gratification is a very rare gift in the U.S.  

In his case, it may actually benefit the insurance policy holder as well.  For a person facing a terminal illness, the ability to access this money may be a godsend.  This person may be facing extremely large medical bills (which unfortunately, is common in such an event).  The last thing you want to face during such a time is a slew of medical bills which are probably jeopardized by decreasing income due to work stoppage.  Furthermore, working 2-3 jobs to pay off these bills is hardly the thing you want to do if you've been diagnosed with  a terminal illness.

The person's life insurance needs may be different where the money is needed more now then after he passes.  Indeed, if the person's policy is older, the actual life insurance need may not be relevant anymore.   Children may be self sufficient or other sources of income or assets are available to spouses.  The original "beneficiary" need for the life insurance policy itself may not be as pressing.  There's also the ability to be in relative comfort during this period of time which is no small matter.  The money can be used to help loved-ones, take trips if possible, and live to the fullest.  A policy-paid bucket list.  In this light, the living benefit rider could be pretty special.  So what's the catch or the cost?

Surprisingly, this particular rider is usually pretty inexpensive and is sometimes offered at no additional cost for the reason I mentioned above (receiving percentage of the total face value of term life policy).  The lost of some portion of the face value may be outweighed by the ability to access the money earlier.  This is obviously a calculation that each person needs to make based on his/her situation and we can help with these types of questions since we're licensed life insurance agents.  If a portion of the total life benefit is accessed, the remaining benefit may still be available to the beneficiary upon triggering the core life benefits.  The policy holder may even be able to add the living benefit rider after the policy is in force. 

The main consideration with the living benefit rider is whether you will lose a significant percentage of total benefit by electing this option.  The secondary concern is whether the money is better served as a living benefit or as a core term life benefit to your beneficiaries.  Again, this depends on the policy provisions and your own life insurance needs. 

As you can see from the many articles in our site about riders and the potential costs associated with, we're not in the business of "selling" riders.  All in all, the living benefit rider rarely takes away (in the form of premium) but adds flexibility to any policy.  You never know when flexibility will prove priceless...at any cost!





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