The term “living benefits” is used in several different ways in the insurance industry. The two primary senses of the word both refer to benefits paid out to people near the end of their lives who have purchased financial products which include a living benefits option. Depending on how one's retirement plans are arranged, it can be advantageous to use living benefits, but it is important to talk to a financial adviser to get specific advice for a given situation.
In the case of life insurance, living benefits are paid out just before death to provide additional financial support. These living benefits are generally only available to terminally ill patients who have less than nine months to live. This is often designed to help people cover a high cost illness so that they do not leave survivors with debts related to the illness. Upon death, the remainder of the insurance benefits will be paid out to the person or persons named as a beneficiary on the policy.
This option allows people to purchase life insurance products which will provide benefits for surviving family members, while also allowing them access to some of these benefits. Not all plans offer this option, and there may be restrictions which are important to be aware of. For people with limited funds in savings and other unique financial situations, these benefits can be very useful.
In the other sense, living benefits are tied to a variable annuity. People who purchase a rider which offers living benefits can receive a set percentage of the funds they have paid into the annuity, or be guaranteed a fixed return on their funds. Annuities offer tax deferral options and other financial benefits which can make them an appealing way of financing retirement, and living benefits may be an additional aspect of an annuity.
People should be aware that sometimes they are more cost effective ways of generating something similar to a living benefit. It is important to weigh issues like withdrawal penalties and fees, and to consider if there are other plans which may use the money more efficiently, or provide more flexibility. A financial planner can help with deciding which financial products to purchase, taking into consideration the details of the situation. Especially for people with limited funds to invest in retirement, it is critical to choose investments which will be stable and efficient, with a minimal risk of losses.