Living Benefits vs. Disability Insurance: What’s the Difference and Do You Need Both?

When people think about protecting their income and family, life insurance usually comes to mind. But what happens if you are still alive and a serious illness or disability affects your ability to work?

That is where Living Benefits and Disability Insurance may come into the conversation. While both can provide financial protection during difficult circumstances, they are designed to address different risks.

Understanding those differences can help you have a more informed conversation about your financial protection strategy.

What Are Living Benefits?

The term Living Benefits is often used when discussing features or riders associated with life insurance that can provide access to certain benefits while the insured person is still alive.

For example, an accelerated death benefit provides an advance payment of some or all of the death benefit under a life insurance policy when a qualifying event occurs. An accelerated benefit generally reduces the death benefit that would otherwise be payable.

Exactly what qualifies for a benefit depends on the individual policy and rider terms. Because insurance products and availability can differ, consumers should review the actual policy rather than assuming that every policy marketed as having "living benefits" provides the same protection.

What Is Disability Insurance?

Disability Insurance has a different primary job: income protection.

According to the National Association of Insurance Commissioners, disability insurance provides income when a worker cannot perform their job duties and earn money because of a disability. Disability insurance is also different from workers' compensation.

There are generally short-term and long-term forms of disability insurance. The NAIC explains that short-term coverage typically replaces a portion of salary for a limited period, while long-term disability coverage may provide benefits for a much longer period, depending on the policy.

The definition of "disability" is especially important. Policies can differ regarding whether you must be unable to perform your own occupation, whether you must be unable to perform other gainful employment, and whether partial disability is covered.

Living Benefits vs. Disability Insurance: The Key Difference

Although the two can sometimes appear similar because both may provide money while you are alive, their purposes are different.

Living Benefits associated with life insurance:
May allow access to qualifying life insurance benefits during the insured person's lifetime when the policy's conditions are satisfied. For an accelerated death benefit, taking the benefit reduces the death benefit otherwise payable.

Disability insurance:
It is designed to provide income when a disability keeps an insured worker from performing job duties and earning money, subject to the policy's definition and conditions.

So these products should not automatically be treated as substitutes for one another.

Why Might Someone Consider Both?

Think about your finances as having several areas that may need protection.

You might have:

• A mortgage or rent

• Groceries and utilities

• Car payments

• Healthcare expenses

• Children's expenses

• Retirement savings goals

• Family members who depend on your income

A serious health event could affect several of these areas simultaneously.

Life Insurance with qualifying living-benefit features may address certain events specified by the policy, while disability insurance is specifically focused on protecting income when a covered disability prevents or limits your ability to work.

For some households, the question therefore isn't simply "Which one is better?"

A more useful question may be:

"What financial risks am I trying to protect against?"

What Should You Compare Before Buying Coverage?

1. Your income needs

Consider how much money your household needs each month for essential expenses.

The NAIC recommends considering financial obligations such as housing, food, transportation, utilities, healthcare expenses and available savings when determining long-term disability coverage needs.

2. The policy's definition of disability

Do not assume all disability policies define disability the same way.

Some policies may focus on whether you can perform your particular occupation, while others may use a broader standard involving other work for which you are qualified.

3. Living-benefit qualification requirements

If you're evaluating life insurance with living benefits, ask exactly what circumstances trigger each benefit.

Also understand how accessing the benefit affects the life insurance policy afterward. Accelerated death benefits, specifically, reduce the death benefit otherwise payable.

4. Exclusions, limitations and waiting periods

Read the policy carefully. Eligibility and benefits depend on the contract.

With disability insurance in particular, covered disabilities and the extent of disability required to receive benefits can vary considerably among policies.

5. What protection you already have

Review existing employer benefits, personal insurance policies, emergency savings and other financial resources before deciding whether additional protection fits your situation.

Living Benefits and disability insurance solve different financial problems.

Living benefits associated with life insurance can provide access to certain policy benefits during your lifetime when qualifying conditions are met. Disability insurance, meanwhile, is specifically designed to provide income protection when a covered disability prevents you from working and earning income.

Neither option is automatically "better." The right approach depends on your income, dependents, financial obligations, existing coverage, health considerations, budget and long-term goals.

Most importantly, review the actual policy provisions, exclusions and eligibility requirements before purchasing coverage.

Ready to Review Your Protection Options?

Not sure whether Living Benefits, Disability Insurance, or a combination of coverage makes sense for your financial situation?

Contact Imelda to discuss your protection goals, understand the differences between available options, and identify questions to ask when reviewing coverage.

Here to help you secure your future.

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