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How Living Benefits can Help You in Retirement

how living benefits can help in retirement

Many people know about life insurance and how it may give financial protection. What about using life insurance in retirement? Just look online, and you will find all sorts of opinions on the subject.

No question about it, everyone’s retirement will be different. However, health costs may be a substantial expense for many households, as research shows. And while we all hope to get lucky and be like those octogenarians who take up running and finish a marathon, reality (and statistics) suggests we should be ready for the alternatives.

There’s good news. Consumer demands and care needs have evolved. In response, life insurance companies have come out with new-generation life insurance products – “hybrid” policies that have a death benefit, but that also let you accelerate those benefit proceeds for qualifying health situations.

Introducing Living Benefits Offered with Life Insurance

Those benefits are called "living benefits." They may come as optional life insurance riders, or some living benefits may be already built into a life insurance contract at no additional cost.

Policyholders may use their living benefits for a number of qualifying situations. That can include certain long-term care needs, terminal illnesses, chronic illnesses, and/or critical illnesses as well as critical injuries. Certain conditions must be met, including certification of health status by a physician, a minimum waiting period for a policy to be held, and the specifics of your health situation.

Apart from living benefits with a life insurance policy, there will probably be other options available: long-term care insurance, disability insurance, and health savings accounts, to name a few.

No matter what tools you use to help pay for health costs in retirement, the importance of planning for them can't be overstated, given how lifespans are increasing.

Longer Lives, More Years to Plan For

When you begin the process of planning for retirement, you look at your potential lifespan and will most likely seek out solutions that will generate lifetime income no matter how long you may live. Live for 30 more years? So will your income payments. Live for 40 more years? No worries, if you have appropriate, long-term income streams ready, that income still comes streaming in.

What could throw this ideal scenario off track? The variable that challenges us all in retirement. Our health… and the ever-rising costs of medical and long-term care. If you feel like you are in pretty good health as retirement approaches, just how much could that really be?

Brace For Impact

According to the new Fidelity Retiree Health Care Cost Estimate, a couple age 65 retiring in 2018 may need approximately $280,000 saved (after tax) to cover health expenses in retirement.

As Fidelity points out, this amount can vary depending on:

  • When you retire
  • Where you retire
  • How healthy you are
  • How long you live


If you retire before Medicare eligibility, for example, and face a medical challenge, that would require greater out-of-pocket spending you likely hadn’t planned for.

The amount you need will also depend on which accounts you use to pay for healthcare—e.g., 401(k), HSA, IRA, or taxable accounts, as well as your tax obligations in retirement and potentially even your gross income.

This estimate of $280,000 per couple may be shocking, but don't forget long-term care. According to Genworth, in 2017 the median cost for long-term services varied from $46,332 to $92,378, depending on the service needed.

Flexible Living Benefits Offer Valuable Flexibility

Fortunately for retirees and working-age adults, there are solutions to this potentially budget-busting retirement challenge. Insurance companies have developed numerous product offerings that can be tailored to an individual policyholder’s desired level of preparedness.

Many people initially think of long-term-care insurance when they investigate how to cover medical costs in retirement. But concerns over paying for benefits they may not use or being faced with rising premiums give others pause.

For retirement savers with these concerns, life insurance policies with living benefits may be of interest. The proceeds may either be accelerated for costly health needs, or the death benefit can be paid out to beneficiaries upon the policyholder passing away.

If you are facing a qualifying health or care situation, proceeds from your policy’s death benefit can be used to help cover expenses related to that event. And it's more than just terminal illness or confined care in a nursing home facility that may qualify.

When a Hybrid Policy Helps Out

The benefits of these insurance policy riders are considered flexible because you have the choice of:

  1. Fully accelerating your benefit to cover qualifying medical costs;
  2. Leaving a portion of the policy’s death benefit intact, only taking out a partial benefit; or
  3. Leaving the entire policy for your beneficiary.


Critical illnesses and critical injuries are medical events that can be addressed by living benefit riders.

Among covered critical illnesses, many of which are the leading causes of disability to our aging population, may be:

  • ALS (Lou Gehrig’s disease)
  • Cancer
  • Heart Attack
  • Heart Valve Replacement
  • Major Organ Transplant
  • Stroke

And qualified critical injuries may include:

  • Coma
  • Paralysis
  • Severe Burns
  • Traumatic Brain Injury

With a long-term care event averaging about 4.4 years for women and 3.2 years for men, according to a 2016 Department of Health and Human Services study, costs can really add up. The national median cost of a semi-private nursing home room is roughly $86,000 per year or $236 per day, the insurance company Genworth reported in its most recent annual national survey. Doing the math, women could face a $344,000 expense for care while men would average $275,000 for the duration of their care.

Clearly, life insurance policies with living benefit riders need deserve a place at the forefront of any retirement income planning conversations.

It’s better to start planning for these costs now, before they pop up in retirement, and well before they could potentially erase a substantial portion of a retirement budget.

Need Help Exploring Your Options for Living Benefits?

Of course, a life insurance policy with living benefits is just one option. There are many choices to consider as part of a retirement income plan. If you could benefit from the help of an insurance or a financial professional in exploring these potential strategies for your needs, financial professionals at SafeMoney.com can help you.

Use our "Find a Financial Professional" section to connect with someone directly. Should you need a personal referral, call us at 877.476.9723. 

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