Some life insurance policies may include living benefits or accelerated death benefits riders that allow policyholders with a terminal illness to access a portion of their policy value to help pay for care and other expenses.

These riders can be bought after the time of purchase or at the time of purchase, however, there are a few caveats:

  • These benefits may not be available to people with preexisting conditions.
  • Payouts of accelerated benefits will reduce the amount available to beneficiaries when the policyholder dies.
  • The policyholder must be diagnosed with a terminal illness and have a life expectancy of 12 months or less.
  • The policy must have been in force for at least two years and at least two years must remain until the maturity date.


Proceeds from living benefits are subtracted from the face value of the life insurance policy. They can be obtained in scheduled payments or through a lump sum.

These riders can often be included in a life insurance policy at little to no cost depending on the insurer, but policyholders can add living benefits later as well. The money can be used for anything from paying for a care home and paying the mortgage to taking a lavish vacation.

The amount of money a person receives varies. As a rule, living benefits are usually between 50% and 80% of the policy’s face value.
The Department of Health and Humans Services states that policyholders can access living benefits when any of the following apply:

  • The policyholder will be confined to a skilled care facility permanently.
  • The policyholder has a terminal illness where death is likely to occur withing a specific time period.
  • The policyholder is unable to perform the basic activities of daily living such as ambulating, dressing and bathing without assistance.


Federal taxes do not apply to living benefits if they meet specific criteria. Living benefits are not usually subject to state income taxes. However, policyholders must be considered terminally ill at the time they file for the benefit in order to receive the tax break. To learn more about qualification requirements, call us. 
If policyholders receive living benefits payments, it is important for them to keep up with their premiums. When premiums are not paid, the policy will lapse, which means beneficiaries will not receive the remainder of funds after the policyholder dies.

In addition to this, the insurance company will charge interest for living benefits. This means the value of the benefits at the time of death will be less. Many insurance companies set a maximum amount they will allow policyholders to take out as a living benefit.

While living benefits may have their advantages, it is also important to remember they can affect eligibility for Social Security and Medicaid. To learn more about these benefits and what options are best for individual needs, call us.

Copyright © 2024
Brown & Stromecki