Money 101: How To Use Life Insurance While You Are Still Alive, Explained

Updated: December 23, 2020

One thing that holds most people back from purchasing life insurance is the fact that they think they will never benefit from owning the policy.

Here’s the thing: That’s actually not accurate. There is a type of life insurance that will allow you to benefit from owning the policy while you are living.

People know they can put their 401(k) to good use throughout their life, but living benefits life insurance? Most people don’t have a clue what that even is.

Let me break it down.

What is living benefits life insurance? 

Living Benefits Life Insurance, also known as the Accelerated Death Benefit, is a type of life insurance product that pays out part of the death benefit while you are still living.

Depending on the policy, this benefit could come at an additional cost, or come free as part of the policy.

This benefit can be attached to term life, no exam term or even a whole life policy, it’s really about finding a company that offers it.

Recently, some companies have added membership programs to their living benefits plan which allow you to receive discounts for member products when you purchase a policy.

For instance, you can get access to a market place that has discounts on things like wills and other health care discounts.

How does the accelerated death benefit work?

The way this product works is that if you are diagnosed with any of the below conditions, the policy will pay out a percentage of the death benefit.

This benefit can be anywhere from 50% all the way up to 75% of the death benefit while you are still living for:

Critical Illness

If you are diagnosed with End Stage Renal Disease (ESRD), a heart attack, a stroke, non-terminal cancer, or even a major organ transplant, you can qualify for the accelerated death benefit.   

This benefit will pay out to cover costs of living, medical bills and anything else you could think of.

Chronic Illness

If you are unable to perform a few of the six daily living activities like feeding yourself, bathing or getting yourself out of bed due to an illness, this is considered a chronic disease and the plan would pay out the living benefit portion of your policy.

Terminal Illness

If you are diagnosed with terminal cancer or illness, this policy will pay out giving you the ability to pay for medical bills and spend your remaining days with your family, maybe traveling or preparing your estate.

Once this policy pays out the percentage of the accelerated benefit, the remainder of the policy will pay out upon your passing.

Filing the claim for an accelerated death benefit does have a cost, and it is usually a few hundred bucks.

This fee is usually taken out of the number of funds you request from the policy; therefore you won’t need to pay it up-front.

What about return of premium life insurance?

When it comes to living benefits, there is also a type of life insurance that is known as return of premium term or ROP term.

Although this policy isn’t classified as being a living benefit, it is the only type of plan that will return all the premiums you paid into the policy if you outlive the policy.

Think of it as a savings account and a free life insurance policy.

For example:

If you purchase a 30 Year $500,000 Return Of Premium Term Life Policy for $85 per month, over the 30 years, you would have paid $30,600 into your policy.

If you outlive the policy, all of that premium will be sent back to you in the form of a lump sum payment.

If you pass away before the 30-year term is up, the policy will pay out 100% of the death benefit, or $500,000.00.  

In all honesty, this is a win, win situation; however, the monthly premiums for this policy are going to be more expensive than a traditional term life plan.

Bottom line

Life insurance can be used as a vehicle to protect a person financially, so get it out of your mind that is something you can’t use while you are alive.

Sa El is an insurance expert and the founder of Simply Insurance

Feature Image: Adam Katz Sinding/Le 21ème