Skip to the content

Life Insurance With Living Cash Benefits

What Is Term Life Insurance With Living Benefits?
(Very Affordable Low Cost Compared to Permanent Life Insurance)

All life insurance policies come with what is known as a death benefit.

The death benefit in a traditional life insurance policy will only pay out upon the death of the insured.

Recently there has been an uptick in the number of companies that are offering policy benefits that would pay out while you are still living; if you encounter any of the below situations:

Critical Illness
If you are diagnosed with something like cancer, a heart attack, or a stroke, that is considered a critical illness, and if your policy has this benefit, it will pay out up to the allowed percentage of the death benefit.

Chronic Illness
In the event you are diagnosed with a chronic illness and are unable to perform two activities of daily living, like bathing, dressing, or eating, this benefit would pay out a percentage of your benefit on an annual basis.

Terminal Illness
I don’t think anyone wants to get a terminal diagnosis; however, if this does happen to you and you are given between 12 and 24 months to live, the policy will pay out a lump sum amount to cover things like experimental medicine, final expenses, or to just spend time with family.

How Much Of The Benefit Can You Accelerate

The amount of the benefit that you are able to accelerate or get in advance will vary by the company.

Some companies will offer you up to 75%, and others could offer you 90%, some companies also may have an “Up To” dollar amount set as well.

It is essential to know precisely how the payout will work for your specific policy because each company is different.

Once you have used the benefit, the insurance company will remove the benefit because it is a one time use so be sure it is the best course of action before you use it.

Remember, whatever amount is remaining in the death benefit after the insured passes away the company will pay out.

For example: You have a $500,000 policy and use the terminal illness accelerated death option with a 75% payout.The company would pay out $375,000, and then upon your death, they would pay out the remaining $125,000.

Are These Benefits Taxable

We all know that the death benefit from a life insurance policy is tax-free, but now that you are receiving your benefits before you pass away does the tax-free status still hold true?

Well, according to the Office of Personnel Management, any living benefit payout received after January 1st, 2017 will be paid out tax-free.

Keep in mind that there is a chance you could pay a state tax depending on where you live so be sure to know how this will work before you move forward in your specific state.