What is a Living Benefits Rider?
A living benefits rider is any rider added to a life insurance policy that allows the policy owner to access benefits from the policy while alive. An accelerated death benefit rider is a living benefit rider, for example.
How riders work with life insurance
When you buy life insurance, the contract spells out how much coverage you’re buying, how long the policy lasts (term vs. permanent life insurance), who gets the money when you die, and how much you’ll pay to keep the policy in force.
But you might want your life insurance to function slightly differently or to offer you different perks. For that, you can turn to riders. Also called endorsements, riders are essentially amendments to your contract that alter how it functions.
Some riders allow you to access some of the policy’s death benefit while you’re living. These are called living benefit riders. In most cases, adding a living benefits rider will increase the cost of your life insurance policy.
The money that you use while alive gets subtracted from your death benefit, leaving your beneficiaries with less after you pass away. Still, though, many riders allow you access to your death benefit when you would truly need it. Leaving your beneficiaries with a smaller death benefit may be preferable over leaving them with, say, your medical debt.
Examples of living benefits riders
Different insurers offer different riders. That said, there are a few fairly common living benefits riders, including:
Accelerated death benefit riders. These riders are designed to allow you to use some of your death benefit when you’re at the end of your life. In order to activate this rider, you’ll need to be diagnosed with a qualifying terminal illness. A diagnosis that leaves you with less than a year to live is usually sufficient to kick the rider into effect. Then, you’ll be able to access all or a portion of your death benefit (depending on the terms of the rider). You can use that money for medical care not covered by insurance, alternative treatments, live-in care, or whatever else you need.
Waiver of premium riders. These riders activate when you become too ill or injured to work. Generally, your insurer will need proof that you have a significant level of disability. Then, while the disability persists, this rider puts a pause on what you owe in premiums. There is generally a waiting period before the insurer waives your premiums and you may need to periodically resubmit proof of the disability.
Long-term care riders. These riders step in to cover the costs of at-home or facility-based care if you become unable to perform what insurers called the activities of daily living (ADL), like feeding yourself or getting dressed. Some long-term care riders offer you payment of a sum of money on a regular schedule, while others reimburse you for applicable expenses.
Critical illness riders. These riders function a lot like accelerated death benefit riders, except that the qualifying illness doesn’t necessarily need to be terminal. This allows you to access the money in your death benefit to pay for medical care or other expenses after diagnosis with a serious illness.
Riders come with specific terms. Your insurer might have a list of illnesses that can activate the coverage, for example. For relevant riders, they may also spell out how you’ll receive the portion of your death benefit to which you’re entitled. You might get a percentage of your death benefit as a one-time lump sum or a smaller percentage may be distributed on a predetermined timeline. Most living benefits riders cap how much of your death benefit you can use in this way.
Ultimately, living benefits riders can give you access to money when you need it, but they will increase the premium you pay for the policy and using one shrinks the death benefit you leave behind.