Access Life Insurance While Alive? 2025 Guide

When most people think about life insurance, they picture a payout that only happens after they’re gone, providing financial support for their loved ones. While that core purpose remains vital, a common question arises: can you actually use life insurance while alive? The answer, perhaps surprisingly to some, is often yes. Modern life insurance policies, especially those designed with flexibility in mind, can offer ways to access funds during your lifetime under specific circumstances. This is often referred to as accessing “living benefits.”

Understanding these options is crucial for comprehensive financial planning. Knowing how your policy might serve you not just in death, but also during challenging times in life, adds another layer of security. However, the world of life insurance riders, cash value, and living benefits can be complex. Policies, features, and rules vary significantly from one insurance carrier to another. This is where guidance becomes essential.

At Insurance By Heroes, we understand the importance of clarity and tailored solutions. Founded by a former first responder and military spouse, our agency is staffed by professionals who often come from backgrounds of public service. We know firsthand the unique challenges and financial planning needs that families, especially those dedicated to serving others, can face. As an independent agency, we aren’t tied to a single company. We partner with dozens of top-rated insurance carriers across the nation. This allows us to shop the market objectively, comparing policies and features to find the coverage that truly fits your individual needs and budget, including those policies offering valuable living benefits.

This article will serve as your updated guide for 2025, exploring the various ways you might be able to use life insurance benefits while you are still alive. We’ll break down the concepts, explain the common scenarios, and highlight the critical importance of understanding your specific policy details – something Insurance By Heroes specializes in helping clients navigate.

Understanding Life Insurance Fundamentals

Before diving into living benefits, let’s quickly recap the basics. Life insurance primarily comes in two main forms:

• Term Life Insurance: Provides coverage for a specific period (the “term”), such as 10, 20, or 30 years. If the insured person passes away during the term, the policy pays out the death benefit to the beneficiaries. It’s generally more affordable initially but does not typically build cash value. Its primary function is income replacement during critical years (e.g., while raising children or paying off a mortgage).
• Permanent Life Insurance: Provides coverage for the insured’s entire life, as long as premiums are paid. Examples include whole life and universal life insurance. Besides the death benefit, these policies usually include a savings component called “cash value” that grows over time on a tax-deferred basis. This cash value is a key element when discussing using life insurance while alive.

The traditional purpose of both types is to provide a tax-free death benefit to beneficiaries. This money can help cover funeral expenses, replace lost income, pay off debts like mortgages, fund education, or simply provide financial stability during a difficult time. However, the landscape has evolved, and many policies now incorporate features designed to offer financial assistance during the policyholder’s lifetime.

What Exactly Are Living Benefits?

Living benefits, formally known as Accelerated Death Benefits (ADBs), are provisions or riders attached to a life insurance policy that allow the policyholder to receive a portion of their death benefit early, while they are still alive, if they meet certain qualifying conditions. Think of it as an advance on the death benefit, triggered by specific life events, usually related to severe health issues.

It’s crucial to understand that living benefits are not typically a separate insurance product you buy on their own. They are features included in, or added as riders to, a life insurance policy. Some policies automatically include certain ADB riders, while others offer them as optional add-ons, sometimes for an additional premium.

The purpose of these benefits is to provide financial relief during incredibly challenging times, helping policyholders cover costs associated with severe illness or end-of-life care without having to deplete other savings or assets entirely. However, the specifics – which conditions qualify, how much can be accessed, and how it impacts the remaining death benefit – differ dramatically from one insurance company and one policy to the next. This variability underscores the advantage of working with an independent agency like Insurance By Heroes. We can compare policies from numerous carriers side-by-side, helping you understand the nuances of their living benefit riders and find one that aligns with your potential future needs.

Common Triggers for Accessing Living Benefits

While policy specifics vary, living benefits are generally triggered by specific, severe health-related events. Here are the most common qualifying conditions:

Terminal Illness

This is perhaps the most common trigger for accelerated death benefits. A terminal illness diagnosis typically means a physician has certified that the policyholder has a limited life expectancy, often defined as 12 or 24 months or less, depending on the policy language. Accessing a portion of the death benefit in this situation can provide crucial funds for:

• Paying for hospice care or palliative care
• Covering medical bills and treatments not covered by health insurance
• Funding experimental treatments
• Replacing lost income if unable to work
• Allowing for travel to see family or fulfill final wishes
• Reducing financial stress for the policyholder and their family

The amount accessible varies but could range from 25% to 100% of the death benefit, often capped at a certain dollar amount. Receiving these funds will reduce the final death benefit paid to beneficiaries.

Chronic Illness

A chronic illness rider allows access to funds if the policyholder becomes unable to perform a certain number of the Activities of Daily Living (ADLs) without assistance, or if they suffer severe cognitive impairment (like Alzheimer’s disease or dementia). The standard ADLs typically include:

• Bathing
• Dressing
• Eating
• Toileting
• Transferring (moving from bed to chair, etc.)
• Continence

Policies usually specify that the inability to perform 2 out of these 6 ADLs qualifies. Funds accessed through a chronic illness rider are often used to pay for:

• Long-term care services (in-home care, nursing home care, assisted living)
• Home modifications (ramps, accessible bathrooms)
• Medical equipment
• Everyday living expenses when care needs increase

It’s important to note that this rider provides a benefit sourced from the life insurance death benefit; it is not the same as traditional Long-Term Care Insurance, though it can serve a similar purpose. Payouts might be structured as lump sums or periodic payments. Again, the policy language is key – definitions, payout structures, and limitations differ among insurers. Insurance By Heroes helps clients compare these specific definitions across multiple carriers.

Critical Illness

A critical illness rider pays out a portion of the death benefit if the policyholder is diagnosed with a specific major illness listed in the policy. Common qualifying critical illnesses often include:

• Heart attack (myocardial infarction)
• Stroke
• Invasive cancer
• End-stage renal failure (kidney failure)
• Major organ transplant
• Paralysis
• Coma

The exact list of covered conditions, definitions (e.g., the severity of a heart attack required to qualify), and survival periods (how long you must survive after diagnosis) vary significantly. Funds received can help cover:

• Medical deductibles, co-pays, and out-of-pocket expenses
• Treatments not covered by health insurance
• Lost income during recovery
• Mortgage payments or other essential bills
• Travel for specialized medical care

Because the definitions and covered illnesses are so specific and variable, comparing policies is essential. An independent agency like Insurance By Heroes can be invaluable in finding a policy with critical illness coverage that aligns with your health concerns and family history, sourced from a wide array of carrier options.

Remember, accessing funds through any living benefit rider will reduce the death benefit payable to your beneficiaries upon your passing. The amount of the reduction might be dollar-for-dollar or may include an administrative fee or interest factor, depending on the insurer and the specific rider.

Accessing Cash Value in Permanent Life Insurance

Beyond living benefit riders, permanent life insurance policies (like whole life or universal life) offer another way to access funds while alive: tapping into the policy’s cash value. This cash value component grows over time, tax-deferred, separate from the death benefit. Here are the primary ways to access it:

Cash Value Withdrawals

Policyholders can typically withdraw funds directly from their cash value. Key points about withdrawals:

• Taxation: Withdrawals are usually tax-free up to the amount you’ve paid in premiums (your “cost basis”). Withdrawals exceeding your basis may be taxed as ordinary income.
• Impact on Policy: Withdrawals permanently reduce both the cash value and the death benefit.
• Availability: The amount available for withdrawal is the current cash value minus any surrender charges (which typically decrease over time).

Withdrawals can be useful for accessing smaller amounts for various needs without the obligation of repayment, but it’s crucial to understand the permanent impact on the policy’s future value and death benefit.

Policy Loans

Another common method is taking a loan against the cash value. Details include:

• Mechanism: You are borrowing money from the insurance company, using the cash value as collateral. The cash value itself technically remains in the policy, potentially earning interest or dividends (depending on the policy type).
• Taxation: Policy loans are generally not considered taxable income, even if the loan amount exceeds your cost basis.
• Interest: The insurance company charges interest on the loan. The rate can be fixed or variable, depending on the policy. While your cash value might still earn interest/dividends, the net cost is the difference between the loan interest charged and the rate earned by the collateralized cash value.
• Repayment: Loans do not have a required repayment schedule. You can repay principal and interest at your discretion.
• Impact on Policy: If the loan is not repaid before the insured passes away, the outstanding loan balance plus any accrued interest is deducted from the death benefit paid to beneficiaries. If the loan balance ever exceeds the policy’s cash value (e.g., due to unpaid interest), the policy could lapse if additional funds aren’t paid in.

Policy loans offer flexibility and generally tax-free access to funds, but managing the loan interest and understanding the impact on the death benefit is critical. The specific loan provisions can differ between carriers, making comparison shopping important. Insurance By Heroes helps clients understand these loan features across various companies.

Surrendering the Policy

This is the most drastic option: canceling the life insurance policy altogether. If you surrender your policy, you will receive the cash surrender value. This is the accumulated cash value minus any outstanding policy loans and surrender charges imposed by the insurer (these charges usually apply most heavily in the early years of the policy and decrease over time).

• Impact: Surrendering the policy means you completely lose the death benefit coverage. Your beneficiaries will receive nothing when you pass away.
• Taxation: Any gain on the surrender (the cash surrender value received minus your cost basis/premiums paid) is subject to ordinary income tax.

Surrendering should be considered very carefully, usually as a last resort, as it terminates the life insurance protection. It may be more appropriate if the original need for the insurance no longer exists and the cash is needed for other purposes.

Choosing between withdrawals, loans, or surrender depends heavily on your financial situation, the amount needed, tax implications, and whether you still need the death benefit protection. Because Insurance By Heroes team members often have backgrounds serving communities, we appreciate the long-term financial planning involved and can help explain these options clearly as we compare policies from different carriers.

Other Potential Ways to Use Life Insurance Benefits While Alive

Beyond living benefit riders and cash value access, there are a couple of other, less common scenarios:

Selling Your Policy (Life Settlements and Viatical Settlements)

It is sometimes possible to sell your life insurance policy to a third-party company for a lump sum payment. This is known as a settlement.

• Viatical Settlements: Apply if the insured has a terminal or chronic illness and a shorter life expectancy. The payout is typically higher than a standard life settlement but still less than the full death benefit.
• Life Settlements: Generally apply to seniors (often age 65+ or 70+) who no longer need or want their policy, even if they aren’t terminally ill. The payout is more than the cash surrender value but less than the death benefit.

The settlement company becomes the new policy owner and beneficiary and continues paying the premiums. They then collect the death benefit when the insured passes away.

Pros: Provides a lump sum of cash that might be significantly more than the cash surrender value.
Cons: The amount received is always less than the death benefit. The process can be complex, involving medical underwriting and financial disclosures. Proceeds may be taxable. Your beneficiaries lose the death benefit entirely. This market is highly regulated, and working with reputable advisors is essential.

Settlements are complex financial transactions and should only be considered after careful evaluation and consultation with financial and legal advisors.

Converting Term to Permanent Insurance

While not a direct way to access funds *from* a term policy while alive, some term policies offer a conversion privilege. This allows you to convert all or part of your term coverage into a permanent policy (like whole life) without needing further medical exams, up to a certain age or point in the term.

Once converted to a permanent policy, that new policy will begin to build cash value over time. Eventually, that cash value could be accessed through withdrawals or loans as described earlier. This is more of a long-term strategy. If the ability to potentially access cash value later in life is important, choosing a term policy with strong conversion options is key. Insurance By Heroes, leveraging its access to dozens of carriers, can help identify term policies with favorable conversion features.

Important Considerations and Caveats

Accessing life insurance benefits while alive can be a valuable option, but it’s essential to proceed with caution and full understanding:

• Reduced Death Benefit: Almost every method of accessing funds while alive (living benefit payouts, withdrawals, outstanding loans, settlements) will reduce or eliminate the death benefit payable to your beneficiaries. Ensure this aligns with your overall financial plan and the needs of your loved ones.
• Costs and Fees: Living benefit riders might have an associated cost, either built into the premium or charged explicitly. Policy loans accrue interest. Surrendering a policy often incurs surrender charges. Understand all potential costs involved.
• Tax Implications: While some access methods (like policy loans or living benefits under certain conditions) can be tax-free, others (like withdrawals exceeding basis, surrender gains, or settlement proceeds) can generate taxable income. Always consult with a qualified tax advisor regarding your specific situation.
• Eligibility and Definitions Matter: For living benefits, the precise definitions of terminal, chronic, and critical illnesses, along with any waiting periods or survival periods, are critical. These vary greatly between insurers. What qualifies under one policy might not under another.
• Not a Replacement: Living benefits are helpful but are not a substitute for comprehensive health insurance, disability income insurance, or dedicated long-term care insurance. They are best viewed as supplemental financial tools for specific, severe situations.
• Policy Language is Paramount: Read your policy documents carefully, paying close attention to riders and provisions related to living benefits and cash value access. If you don’t have a policy yet, comparing these details across multiple quotes is crucial.

The sheer variability between insurance carriers highlights why working with an independent agency is so advantageous. Instead of being limited to one company’s definitions and rules, Insurance By Heroes can search across dozens of providers to find the policy features – including robust and clearly defined living benefits – that best suit your expectations and potential needs. We help translate the complex policy language into plain English.

Why Choose Insurance By Heroes for Your Life Insurance Needs?

Navigating the complexities of life insurance, especially features like living benefits and cash value, requires trust and expertise. At Insurance By Heroes, our foundation is built on service and understanding.

Our founder, a former first responder and military spouse, established the agency with a clear mission: to provide honest, tailored insurance solutions, particularly for those in service-oriented professions (first responders, military, healthcare workers, educators) and their families, though we proudly serve everyone.

Our team often shares this public service background, bringing a unique perspective and commitment to protecting our clients. We understand the importance of reliable coverage and clear communication.

Crucially, Insurance By Heroes is an independent agency. This means:

• We Work for You, Not an Insurance Company: Our loyalty is to our clients. We aren’t obligated to push products from a single carrier.
• Access to Dozens of Top Carriers: We partner with a wide range of highly-rated insurance companies nationwide.
• Ability to Shop the Market: We compare coverage options, features (like living benefits and cash value rules), and pricing from multiple insurers to find the best fit and value for your specific situation.
• Tailored Solutions: We take the time to understand your needs, budget, and goals to recommend coverage that truly makes sense for you and your family.

When it comes to using life insurance while alive, the differences between policies are significant. The definition of a “chronic illness,” the percentage of the death benefit accessible for a “terminal illness,” or the interest rate charged on policy loans can vary widely. Insurance By Heroes leverages its independence to find policies with the features and flexibility you desire, explaining the pros and cons of each option clearly.

Take Control of Your Financial Security Today

Understanding that your life insurance policy might offer benefits you can use while alive adds a powerful dimension to your financial planning. Whether through accelerated death benefit riders triggered by illness or by accessing the cash value in a permanent policy, these features can provide critical financial support during difficult times.

However, the key takeaway is that not all policies are created equal. The availability, terms, conditions, and impact of accessing living benefits or cash value vary significantly between insurance carriers and specific policy contracts. Making an informed decision requires careful comparison and expert guidance.

Don’t leave your financial security to chance or settle for a one-size-fits-all policy. Let the dedicated team at Insurance By Heroes help you navigate your options. With our background in service and our independence to shop the market among dozens of top carriers, we can help you find a life insurance policy that not only protects your loved ones after you’re gone but also offers valuable living benefits should you need them.

Ready to explore your options and find the right life insurance coverage with the potential for living benefits? Take the first step now. Fill out the quote request form on this page for a free, no-obligation consultation. Let Insurance By Heroes put our expertise and commitment to work for you.