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Living Benefits of Life Insurance

Updated April 2, 2024 . AmFam Team

You probably know life insurance can help financially protect the people you love if you were to pass away. But are you aware that some types of life insurance can also offer value while you’re still here—helping you stay flexible as your needs change over time?

Here’s a high-level look at a few “living benefits” you may have access to through certain life insurance policies and optional riders.


You probably know that life insurance can help financially protect your loved ones if you pass away.

But did you know that life insurance can also provide benefits while you’re alive?

Certain types of life insurance allow the policy owner to build cash value that accumulates over the life of the policy.

Unlike a death benefit that pays out when the insured person passes away...

With this living benefit, the cash value money can be used while the insured is still alive!

For example, they can borrow against the cash value of the policy for emergencies or medical payments — and even to supplement their retirement income! The cash value of the policy is the policyholder’s to use as they wish.

Keep in mind, this money is considered a loan and will accrue interest.

If it’s not repaid before the insured person passes away, then the death benefit will be reduced by the amount of the loan plus any outstanding interest.

And, failure to pay the loan interest could result in the termination of the policy.

Examples of life insurance policies that allow the insured to build cash value over time include American Family Life Insurance Company’s Dream Secure Whole Life and Dream Secure Flexible Life Insurance policies.

And when you have a permanent or flexible life insurance policy, the cash value grows tax-deferred.

Another way to get living benefits out of life insurance is with a living benefit rider.

This additional coverage can help the insured customize their policy to better fit their unique needs.

For example, an accelerated death benefit rider may pay out a portion of the death benefit if the insured has been diagnosed as terminally ill, as defined by the rider. The money could be used for expenses such as medical bills.

Then, when the insured passes away, their beneficiaries would receive a reduced life insurance death benefit since a portion of the policy was already paid out.

In summary, the living benefits of life insurance are just one more way life insurance helps protect what matters most.

Ready to learn more?

Visit AmFam.com or talk to your American Family Insurance agent to learn more about your life insurance options.

What does “living benefits” mean in life insurance?

Living benefits is a common way to describe features that may help you during your lifetime—in contrast to the death benefit your beneficiaries may receive later. Two examples you may hear about are:

  • Cash value, that may build in some life insurance policies such as whole life and universal life
  • Living benefits riders, which are add-on options that can provide financial support in the face of a medical emergency, terminal illness, or total disability

What is cash value in life insurance?

Some life insurance policies can build cash value, which is money that accumulates inside the policy over time. That cash value may be available to you while you’re alive, subject to policy terms and conditions.

American Family Life Insurance Company policies that offer cash value include:

Because cash value policies can offer long-term coverage as well as the potential to accumulate value, premiums are typically higher than those for term life insurance, which provides coverage for a set period of time.

Common ways people use cash value

Here are a few reasons someone might consider a cash value policy—and the trade-offs to understand.

  1. Policy loans. You can borrow against your policy’s cash value—according to the policy terms and conditions—to help pay for things that are important to you. Policyowners commonly use their cash value to help pay toward things like college tuition, emergency expenses, or retirement income. Keep in mind, this is a loan, so:
    • Loans accrue interest
    • Any outstanding balance (loan + interest) is deducted from the death benefit at time of claim or from the cash value at surrender.
    • If the loan balance grows too large for the cash value to support it, the policy could terminate.
  2. Tax-deferred growth. With life insurance, cash value grows income tax-deferred.
  3. College costs. Some families like having multiple ways to help pay for college. With a cash value life insurance policy, you could surrender the policy and, if you choose, use the money toward college expenses. Keep in mind: If you surrender the policy, the life insurance coverage ends, so be sure to go over the details with your agent.

 

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What are living benefits riders?

A category of add-on coverages called living benefits riders may enable you to access part of your death benefit while you’re still living. These optional riders often involve an additional cost, but not always.

At American Family Life Insurance Company, we offer two such riders:

  • Accelerated death benefit: Can be added to any of our life policies—including term—at no additional cost and may help provide financial support in the face of terminal illness.
  • Waiver of premium: Available on some of our life policies for an additional cost and can help ensure the policy stays active if the insured becomes totally disabled.

Here’s an example of how living benefits riders work: Say you’re diagnosed with a terminal illness. You can add our accelerated death benefit rider to your policy and may be able to receive a portion of the death benefit before you pass away. Any money accessed through a living benefits rider would generally be deducted from the death benefit paid to your beneficiaries later.*

Bringing it all together

Life insurance coverage is often about protecting the people you love, and some policies and riders give you more options while you’re living. If you’re interested in a policy that offers cash value or living benefit options, your American Family Insurance agent can help you understand what’s available and what it could mean for your goals.

This information represents only a brief description of coverages, is not part of your policy, and is not a promise or guarantee of coverage. If there is any conflict between this information and your policy, the provisions of the policy will prevail. Insurance policy terms and conditions may apply. Exclusions may apply to policies, endorsements, or riders. Coverage may vary by state and may be subject to change. Some products are not available in every state. Please read your policy and contact your agent for assistance.

*Exercising the Accelerated Death Benefit Rider may have tax consequences and could impact qualifications for government benefits.

Policy Forms: ICC17-225 WL, ICC17-227 WL, ICC17-228 WL, ICC17-223 WL, ICC17-224 WL, ICC21 L141 MS 01 22, ICC17-ACDB WL, ICC17-ACDB UL, ICC19 L335 MS 04 20

Life insurance underwritten by American Family Life Insurance Company, 6000 American Parkway, Madison, WI 53783.

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