What Does Living Needs Mean in a Life Insurance Policy?
Living needs is a term used to describe the living benefits of a life insurance policy. Normally, life insurance uses the death benefit as a way to provide benefits to your beneficiaries after you die. However, life insurance companies also offer a way for you to use the death benefit during your lifetime if you need it.
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Function
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Access living needs benefits by calling the insurance company and requesting a partial surrender of the death benefit. You must apply for this surrender and may not be approved. The surrender is subject to the insurance company's discretion.
Significance
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Getting access to the death benefit during your lifetime means that you are able to spend down the death benefit for any reason you choose once the insurer has approved your request. The death benefit is permanently reduced and premiums may or may not still be due, depending on how the insurer treats the distribution from the policy.
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Disadvantages
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To use the living needs benefit of a policy, you must be diagnosed with a terminal illness that doctors expect to cause your death in 12 to 24 months. Insurance companies must be reasonably certain that you will not live beyond this time. Unfortunately, this means that the reason you need the death benefit early is because you'll die soon.
Benefits
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The benefit of accessing the death benefit early is that you have the ability to enjoy your last moments alive doing what you want to do. The money that you otherwise would not have available is made available to you by the generosity of the insurer.
Misconceptions
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A common misconception is that life insurance only benefits your beneficiaries. While this is generally true, check the provisions of your policy. Your life insurance may include a living needs benefit or some other benefit that allows you to access the death benefit early for certain critical or terminal illnesses.
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