A Comprehensive Explanation of the Necessity of the Living Needs Rider! Benefits of Living Benefit Payments and Points to Note When Using It

Are you familiar with the “Living Needs Rider”? Although it is an insurance rider that can often be added for free, it provides great peace of mind in the event of a terminal diagnosis. This article explains everything from the basics of this rider to its greatest benefit—receiving a lump sum of money while alive—and the precautions to take when using it, such as the reduction of the death benefit. To protect your loved ones and your final time together, it is important to correctly understand the necessity, benefits, and drawbacks of this rider.

What is the Living Needs Rider?

The Living Needs Rider is a special clause that allows the insured (the person covered by the insurance) to receive a portion or all of the death benefit in advance as a “Living Benefit Payment” (or Accelerated Death Benefit) if a doctor diagnoses them with a life expectancy of 6 months or less.

• The premium for this rider is usually free.
• There are no restrictions on how the received money can be used (medical expenses, living expenses, travel, etc.).
• The maximum amount that can typically be received is stipulated to be up to 30 million yen.

Necessity and Benefits

The Living Needs Rider is considered a “rider that you cannot lose by having”, and since it is often automatically included in many life insurance policies for free, its necessity is considered high.

Benefits

• Reduction of Financial Anxiety and Freedom of Use The funds can be used for costly medical treatments after a terminal diagnosis, or for expenses to spend the remaining time meaningfully (travel, fulfilling bucket list items, etc.).
• The Received Benefit is Non-Taxable The money received as a Living Benefit Payment is not subject to income tax or inheritance tax.
• Preparation for the Worst Without Additional Cost The rider premium is often free, so there is no financial burden associated with adding it.
• No Obligation to Refund if You Live Longer than 6 Months Even if you live beyond the diagnosed life expectancy after receiving the Living Benefit Payment, you do not have to return the money.
• Family Can File the Claim on Your Behalf If a Designated Agent Rider is included, a family member or other designated person can file the claim on behalf of the insured if the insured is unable to do so themselves.

Drawbacks and Precautions

The following points are not so much drawbacks of the rider itself, but rather precautions to consider when utilizing it.

Drawbacks / Precautions

• The Death Benefit is Reduced The amount received as a Living Benefit Payment will be deducted from the original death benefit. If the entire death benefit is received, the insurance contract will terminate, and there will be no coverage upon death.
• The Remainder of the Received Benefit is Subject to Inheritance Tax If the insured passes away before spending all the money received as a Living Benefit Payment, the remaining amount is considered part of the inheritance and will be subject to inheritance tax (the non-taxable allowance of “5 million × the number of statutory heirs” applicable to death benefits will not apply).
• You Do Not Receive the Full Amount Claimed The Living Benefit Payment is considered an “advance payment of the death benefit,” so the amount received will have an amount equivalent to the interest for the remaining life expectancy and, if the premium payment period is ongoing, six months’ worth of premiums deducted from the claimed amount.
• The Insured May Be Informed of Their Life Expectancy Even if a family member files the claim secretly, the insured might discover the utilization of the rider (and thus, the diagnosis of a life expectancy of 6 months or less) through a reduction in premium withdrawal amounts or an inquiry to the insurance company.

Summary