Living Benefits in Retirement

Most people recognize that life insurance is designed to protect loved ones after you’re gone. But what about using life insurance during retirement? As you plan for the future, it’s worth considering how life insurance living benefits can help manage unexpected expenses—especially rising healthcare costs.

Types of Living Benefits & When They Apply

Modern life insurance policies often include “living benefits,” which let you access a portion of the death benefit while you’re still alive—usually if you face certain health challenges. Here’s an at-a-glance look at how different living benefits can be used in retirement:

Benefit Type	Trigger Event	How Funds May Be Used
Chronic Illness Rider	Permanent inability to perform 2+ Activities of Daily Living (ADLs)	Long-term care, home health care, assisted living
Critical Illness Rider	Diagnosis of covered illnesses (e.g., cancer, heart attack, stroke)	Treatment costs, medical bills, recovery expenses
Terminal Illness Rider	Prognosis of less than 12–24 months to live	Any purpose, including care or family support
Long-Term Care Rider	Certification of long-term care need by a physician	Ongoing care, facility costs, in-home support

These benefits are often available as optional riders, or may be built into certain policies at no extra cost. To qualify, policyholders usually need to meet health requirements, such as being unable to perform specific daily tasks or facing a covered diagnosis. Some policies require a waiting period or a doctor’s certification.

Other options, like traditional long-term care insurance, disability insurance, and health savings accounts, can also help manage health expenses. But the flexibility of living benefits means more options for retirees facing healthcare needs.

Longer Lives and Rising Expenses

Thanks to advances in medicine and lifestyle, people are living longer than ever. That’s good news—but it also means more years of retirement to fund and higher odds of facing health costs. According to recent research, health expenses can be a major concern in retirement, with costs rising each year.

When planning for a long retirement, it’s important to account for unpredictable expenses. Even if you’re in good health, unexpected illness or long-term care can quickly add up.

Brace for Impact: Healthcare Cost Estimates

The Fidelity Retiree Health Care Cost Estimate reports that a couple turning 65 in 2025 may need about $350,000 (after tax) to cover health expenses throughout retirement. Factors that influence this number include:

• When you retire
• Where you live
• Your overall health
• Your longevity

If you retire before Medicare eligibility or face major health challenges, your actual out-of-pocket costs may be higher. Which accounts you use to pay for care (401(k), HSA, IRA, or taxable accounts) and your tax situation also matter.

And don’t forget about long-term care: According to Genworth’s most recent annual survey, the national median cost for long-term services now ranges from $59,484 to $108,408 per year, depending on care type.

Living Benefits vs. Traditional LTC Insurance: Pros & Cons

Both living benefits and traditional long-term care insurance can provide financial support, but they work differently. Here’s a comparison:

Feature	Living Benefits	Traditional LTC Insurance
How Benefits Are Used	Accelerated from life insurance death benefit for covered health events	Reimburses eligible care costs up to plan limits
Premiums	Usually level (single or ongoing)	Annual, may increase with age or over time
If Care Not Needed	Remaining death benefit goes to beneficiaries	No payout if care is never needed
Flexibility	May use for chronic, critical, terminal illness, or long-term care	Primarily for long-term care only
Underwriting	Health evaluation required	Health evaluation required
Tax Treatment	Generally tax-free if meeting IRS rules	Generally tax-free if care needed

Connector: While both options can be valuable, living benefits offer more flexibility—especially if you want your policy to provide value whether or not you end up needing long-term care. It’s important to compare both approaches as you plan for retirement health costs.

Flexible Living Benefits: How They Work

Insurance companies have created many products to help retirees and working adults address future health expenses. Many people think first of traditional long-term care insurance, but concerns about rising premiums or unused benefits are common.

Life insurance policies with living benefits can address these concerns. Policyholders can use all or part of the death benefit to cover qualified health events, such as:

• Certain long-term care needs
• Terminal illnesses
• Chronic illnesses
• Critical illnesses or injuries

Requirements vary, but most policies need a doctor’s certification or proof of specific health conditions. It’s a way to plan for the unexpected—without worrying that benefits will go unused.

What Qualifies for Living Benefits?

Covered conditions may include:

• ALS (Lou Gehrig’s disease)
• Cancer
• Heart attack
• Heart valve replacement
• Major organ transplant
• Stroke

Qualified critical injuries may include:

• Coma
• Paralysis
• Severe burns
• Traumatic brain injury

With long-term care events lasting about 4.4 years for women and 3.2 years for men on average, costs can add up fast. For example, a semi-private nursing home room can now run $94,896 per year nationwide. That means women may face $344,000 in care costs and men about $275,000 over the typical duration of care.

Myth vs. Fact: Living Benefits in Retirement

Myth	Fact
“Living benefits are just for emergencies.”	They can help with many health events, including long-term care, not just crises.
“If I don’t use the benefit, I lose it.”	Unused benefits remain as a death benefit for your beneficiaries.
“Only permanent life insurance has living benefits.”	Many term, universal, and indexed universal policies now offer living benefit riders.
“It’s too complicated to qualify.”	Most policies have straightforward triggers, such as a diagnosis or inability to do ADLs.

Connector: It’s easy to see why life insurance policies with living benefit riders are taking a bigger role in retirement conversations. They help provide options, control, and protection for unpredictable costs.

It’s always better to start planning for these costs now—long before they threaten your retirement budget or legacy. Evaluating your needs, comparing options, and understanding the unique features of living benefits can help you build a more flexible, secure retirement strategy.