Universal Life Living Benefits in Michigan

Last Updated on September 23, 2026 by iMichigan Insurance Editorial Team

Most people think of life insurance as something that only provides a benefit after the insured dies. However, some permanent life insurance policies, including certain universal life policies, may provide access to benefits or policy values while the insured is still living.

The term “living benefits” most commonly refers to policy provisions or riders that may allow an insured person to access part of a life insurance death benefit after a qualifying health event. Universal life insurance may also provide a separate source of flexibility through accumulated cash value, which you may access through policy loans or withdrawals under the contract terms.

Understanding the difference is important because living-benefit riders, cash value, withdrawals, and policy loans each work differently and can affect the policy in different ways.

What Are Living Benefits in Universal Life Insurance?

Life insurance terminology can be confusing because the phrase “living benefits” is sometimes used broadly. It helps to separate two different features that may be available with permanent life insurance.

Accelerated Living Benefit Riders

These are policy provisions or riders that may allow the insured to receive an advance of part of the policy’s death benefit after meeting specific health-related requirements. Depending on the contract, qualifying events may include terminal illness, chronic illness, or certain critical illnesses.

Cash Value Access

Many universal life policies are designed to accumulate cash value over time. You may be able to access that cash value through policy loans or withdrawals. Cash-value access is a feature of the permanent life insurance contract and is different from accelerating a death benefit because of a qualifying medical condition.

How Universal Life Insurance Works

Universal life is a type of permanent life insurance designed to provide coverage beyond a specific term when policy requirements are met. Many universal life policies also include a cash value component.

Unlike traditional whole life insurance, universal life may provide flexibility in premium payments or death benefit structure, depending on the policy. However, that flexibility means policyholders need to understand how premiums, insurance costs, interest credits, withdrawals, and loans can affect the policy over time.

For a broader comparison of permanent coverage options, see our Whole Life vs. Universal Life Insurance in Michigan guide.

How Cash Value Builds in Universal Life Insurance

Many universal life policies are designed to build cash value, but actual growth depends on the policy’s structure.

Factors that can affect cash value may include:

• Premium payments
• Policy expenses and insurance costs
• Interest credited under the contract
• Withdrawals
• Outstanding policy loans
• Changes to the death benefit
• The specific type of universal life policy

Cash value should not be assumed to grow at the same rate every year, and the amount available later may depend significantly on how the policy is funded and managed.

How Universal Life Policy Loans Work

A policy loan lets a policyholder borrow against available policy value under the terms of the insurance contract. Unlike many traditional loans, a policy loan generally does not require a separate credit application because the policy provides the underlying value.

However, that convenience does not mean policy loans are without consequences.

• Interest generally applies: The interest rate and loan terms depend on the policy.
• Outstanding loans can reduce benefits: An unpaid loan balance and accumulated interest may reduce the amount paid to beneficiaries.
• Loans can affect policy performance: Borrowing substantial amounts may reduce available policy value.
• A policy lapse can create additional problems: A large outstanding loan can increase lapse risk if the policy no longer has sufficient value to cover its costs.

How Universal Life Withdrawals Work

Some universal life policies allow withdrawals from available cash value. Unlike a loan, a withdrawal generally removes money from the policy rather than creating a balance to repay.

A withdrawal may:

• Reduce available cash value
• Reduce the death benefit
• Change future policy performance
• Increase the risk of the policy lapsing if insufficient value remains
• Have tax consequences depending on the policy and circumstances

Policyholders should review the contract and understand the long-term effect before withdrawing money from a permanent life insurance policy.

Are Universal Life Policy Loans Taxable?

Policy loans generally are not treated as taxable income when taken from a life insurance policy that remains in force, but exceptions can apply.

Tax treatment may become more complicated if:

• The policy lapses with an outstanding loan
• The policy is surrendered
• The contract contains a taxable gain
• The policy is classified as a modified endowment contract
• Multiple withdrawals and loans have changed the policy’s tax position

What Are Accelerated Death Benefit Riders?

Some universal life policies may include or offer riders that allow an insured person to receive an advance of part of the death benefit after a qualifying health event.

Common types may include:

Terminal Illness Benefits

A terminal illness rider may allow access to part of the death benefit when the insured meets the policy’s definition of terminal illness and required life-expectancy criteria.

Chronic Illness Benefits

A chronic illness rider may provide benefits when the insured satisfies specified medical or functional requirements. Definitions differ between policies, so don’t assume eligibility based only on a diagnosis.

Critical Illness Benefits

Some policies may offer benefits connected to specified critical illnesses. Covered conditions, waiting periods, documentation requirements, and benefit calculations vary significantly by insurer and contract.

When an accelerated benefit is paid, the remaining life insurance benefit is generally reduced. Depending on the rider, additional adjustments, charges, or limitations may also apply.

Do Living Benefits Replace Health Insurance?

No. Life insurance living benefits should not be viewed as a replacement for health insurance.

Health insurance is designed to help pay eligible healthcare expenses according to a health plan’s terms. A life insurance living-benefit rider is tied to a life insurance contract and may provide access to funds only after you meet specific eligibility requirements.

A qualifying life insurance benefit may give a household additional financial flexibility, but it does not provide the same type of medical coverage as health insurance.

Are Living Benefits the Same as Long-Term Care Insurance?

Not necessarily. Chronic illness riders, accelerated death benefit riders, and long-term care insurance can all provide financial assistance under certain health circumstances, but they are not automatically interchangeable.

A standalone long-term care insurance policy is specifically designed around qualifying long-term care needs. A life insurance rider may instead provide access to part of a life insurance benefit after conditions defined in the rider are met.

Important differences can include:

• How eligibility is determined
• Whether benefits require qualified care expenses
• Maximum benefit amounts
• How long benefits may continue
• Whether benefits reduce the life insurance death benefit
• Whether benefits are reimbursement-based or paid under another structure
• Available riders and policy costs

If extended care is a major concern, compare what a life insurance rider provides with other long-term care planning options. You can also review our Long-Term Care Planning Guide.

Why Living Benefits May Matter to Michigan Families

A serious illness can affect more than medical bills. Families may also experience lost income, additional caregiving responsibilities, transportation expenses, household assistance needs, or changes to retirement plans.

Depending on the policy and circumstances, living-benefit features may provide another source of financial flexibility.

Possible financial pressures can include:

• Out-of-pocket medical expenses
• Time away from work
• Income disruption for self-employed individuals
• Caregiving expenses
• Home modifications or support services
• Household expenses during an extended illness

The important point is that a living benefit is not guaranteed to cover all of these expenses. The policy determines when benefits become available and how much you can access.

When Might Universal Life With Living Benefits Be Worth Considering?

Universal life may be worth evaluating when someone wants permanent life insurance and is also interested in features such as potential cash-value accumulation or available accelerated-benefit riders.

It may be appropriate to compare universal life with other coverage when:

• You want life insurance protection designed to extend beyond a specific term.
• You want permanent coverage with potential cash value.
• You want to understand whether living-benefit riders are available.
• You want some flexibility in how a permanent life insurance policy is structured.
• You have long-term family, estate, or business protection needs.

Universal life isn’t automatically the right choice just because these features are available. Someone whose primary goal is affordable income replacement for a defined period may also want to compare term life insurance.

Parents determining how much protection their family may need can also review our Life Insurance for New Parents Guide.

Questions to Ask Before Choosing a Policy With Living Benefits

Policy language matters more than the name of a rider. Before purchasing or relying on a living-benefit feature, ask questions such as

• Which living-benefit riders are included?
• Which riders cost extra?
• What health conditions or events trigger eligibility?
• Who determines whether I qualify?
• What medical documentation is required?
• How much of the death benefit can be accelerated?
• Will an accelerated benefit reduce the remaining death benefit dollar-for-dollar?
• Are there administrative charges or other adjustments?
• How do policy loans affect the death benefit?
• What interest rate applies to loans?
• How could a withdrawal affect future policy performance?
• Could a loan or withdrawal cause the policy to lapse?
• What happens if credited interest or policy performance changes?

Important Considerations Before Using Living Benefits

• The death benefit may decrease. Accelerated benefits generally reduce the amount remaining for beneficiaries.
• Loans accumulate interest. Unpaid loan balances can reduce available policy values and benefits.
• Withdrawals may permanently reduce policy values.
• Policy lapse risk can increase. Large loans or withdrawals can make it more difficult for policy values to support ongoing insurance costs.
• Eligibility is contract-specific. A medical diagnosis alone does not necessarily mean a rider will pay.
• Tax consequences can vary. Loans, withdrawals, accelerated benefits, lapses, and modified endowment contracts can have different tax implications.
• Riders vary between insurers. Similar-sounding riders may have significantly different definitions and benefits.

Michigan consumers can also review general life insurance information from the Michigan Department of Insurance and Financial Services.

Frequently Asked Questions About Universal Life Living Benefits

Are living benefits included in every universal life insurance policy?

No. Living-benefit riders and provisions vary by insurer and policy. Some may be included automatically, some may be optional, and others may not be available. Review the actual policy and rider language rather than assuming a universal life policy includes a specific benefit.

What is the difference between a living benefit and cash value?

Cash value is a component that may accumulate within certain permanent life insurance policies. A living-benefit rider generally allows access to part of the death benefit after a qualifying event. Cash-value loans and withdrawals and accelerated death benefits are separate policy features and may affect the policy differently.

Do living benefits reduce the death benefit?

Accelerated death benefits generally reduce the benefit remaining for beneficiaries. Policy loans and withdrawals can also reduce the amount ultimately paid if values are not restored or loans are not repaid.

Can universal life cash value be used for emergencies?

Possibly. A policy may allow loans or withdrawals from available cash value. However, accessing cash value can reduce policy values, affect the death benefit, generate loan interest, and increase lapse risk. Review the policy before taking money from it.

Are universal life policy loans taxable?

Policy loans generally are not treated as taxable income while a qualifying life insurance policy remains in force, but exceptions can apply. A lapse or surrender with an outstanding loan, gains within the contract, or classification as a modified endowment contract can change the tax result. Consider consulting a qualified tax professional before relying on a particular tax treatment.

Are living benefits the same as long-term care insurance?

No. Some life insurance riders may provide benefits after chronic illness or other qualifying events, but they are not automatically equivalent to standalone long-term care insurance. Eligibility rules, benefit amounts, payment methods, coverage periods, and effects on the death benefit can differ.

Do living benefits replace health insurance?

No. Health insurance and life insurance living benefits serve different purposes. Living-benefit riders may provide access to funds after certain qualifying events, but they do not provide the same medical coverage as health insurance.

Can a policy lapse after taking a loan?

Yes, depending on the policy. Large outstanding loans, accumulated interest, withdrawals, insurance costs, and inadequate policy funding can reduce available value and may contribute to a lapse. Policyholders should monitor policy performance after taking loans or withdrawals.

Related Life Insurance Resources

• Whole Life vs. Universal Life Insurance in Michigan
• Michigan Life Insurance Policies: Overview
• Final Expense Planning in Michigan
• Life Insurance for New Parents: How Much Do You Need?
• Long-Term Care Planning Guide

Understanding the Policy Before You Rely on Living Benefits

Living-benefit riders and cash-value features can give some universal life policies additional flexibility beyond providing a death benefit. But the value of those features depends on how the individual policy actually works.

Before purchasing coverage or accessing existing policy values, understand which benefits are available, what triggers eligibility, how loans or withdrawals affect the policy, and how using benefits today could change what remains for beneficiaries later.

Note: This article is for general informational purposes and does not constitute legal, tax, financial, or medical advice. Life insurance policy features, cash values, rider availability, eligibility requirements, costs, benefits, guarantees, and tax treatment vary by insurer, policy, and individual circumstances.