How To Use Life Insurance While Alive
People usually get life insurance to secure funds in case of dire emergencies. Yet, many do not know you can use the death benefits while alive. To be fair, it seems odd to access your policy’s death benefit early, right?
Your life insurance policy could allow you to access the death benefits sooner, depending on its terms and conditions. Some people may need to do it due to unforeseen circumstances such as chronic illness. That is why you might want to keep options open for your life insurance coverage.
We will start by discussing how to use the accelerated death benefits for permanent life insurance. Next, we will explain how to access living benefits for a term life insurance policy. More importantly, make sure to take all the time you need to plan these actions.
Living benefits for term life insurance
Many people prefer term life insurance policies because it is typically more affordable than permanent ones. Yet, they only last for a specific amount of years, called a term.
These often range from a year to 30. You will have to pay for the policy throughout its term, but you cannot access money while it is active. As a result, it does not have cash value.
What if you are still alive once the life insurance policy ends? Then, you will not be able to access the death benefits, and you cannot withdraw money.
However, your life insurance could be an exception if it has a return of premium (ROP) policy. You can withdraw all the funds as long as you regularly pay the premiums.
These policies tend to be more expensive than regular term policies. If you want to take out the death benefit early, then you may try the following methods:
Accelerated death benefits
Your life insurance policy may give you a portion of your term should you face a terminal illness. The funds may help you cover medical expenses.
On the other hand, some people spend the money on a dream vacation with their loved ones. Note that life insurance companies require a different life expectancy timeline for accelerated death benefits.
Some may need a specific amount of time before you can access living benefits. Also, term policies may charge interest based on a portion of your advanced death benefit.
The accelerated amount of money usually reduces the amount your beneficiary receives after you pass away. Aside from using accelerated death benefits, you could become a critical illness rider.
This action lets you access the death benefit if you contract a specific chronic illness. Check your insurance company if the current policy has this feature.
Return of premium
We have mentioned earlier that you can get a term life insurance policy with a return of premium. You can withdraw the money anytime as long as you diligently pay premiums.
What’s more, you receive the funds once the term ends. As a result, ROP removes the typical disadvantage of term life insurance policies over permanent ones.
However, this removes the usual appeal of a term policy: affordability. Explore all your options to get the most advantageous features.
Disability waiver of premium
This method is different from the others because you cannot withdraw the cash value early. Instead, it lets you skip the premium payments if you get a long-term disability for half a year or more.
You do not receive a lump sum, but you might need it. For example, a person may become bedridden due to a chronic illness. As a result, they may have to stop working for three months or longer.
A disability waiver of premium could save you from potential penalties. More importantly, you are more likely to keep your life insurance policy.
Living benefits for permanent life insurance
If you want to access benefits early, you may consider a permanent policy. Unlike term policies, these guarantee a death benefit no matter if the insured person dies.
The policy premiums last while you are alive, unlike a term life insurance policy. Just make sure to pay them on time and follow the other terms.
Moreover, these life insurance policies carry an investment component called the cash value. All the cash value is tax-deferred, and it grows over time.
You could borrow or withdraw the accumulated cash value while still alive. However, you may reduce the policy’s death benefit if you do not pay it back.
The policy’s cash value reverts to the insurance company instead of the beneficiaries when you pass away. Here are the other ways you can tap into the living benefits of permanent life insurance:
Cash value withdrawal
Search for this specific term in your policy if you want to withdraw from its cash value. The withdrawal lets you access some of the cash value of your permanent life insurance.
As mentioned earlier, you will not need to pay any taxes on a cash value withdrawal if the amount is less than or equal to your premium.
You will owe taxes if any portion of the withdrawal comes from dividends, interest charges, or capital gains. Moreover, remember that the withdrawn amount will deduct from the death benefit.
Policy loan and policy surrender
We mentioned how you could take out a loan against your policy. It has interest charges, but they are typically lower than those from regular loans.
What sets policy loans apart from other debt options is that you will not have to go through a credit check. What’s more, it does not require an exhaustive list of restrictions.
On the other hand, you could cancel your health insurance early to take the cash value as a lump sum. This action is called a policy surrender. Your insurance company will provide the amount and deduct outstanding loans and unpaid premiums.
Long-term care benefits
A life insurance policy could have long-term benefits that allow you to cover long-term medical expenses. Some people use this feature to cover costs not included in their health insurance.
You may want to consider these benefits once you learn how likely you are to need them. Studies show that 70% of people turning 65 would need long-term care.
These long-term care benefits lower the death benefit. All these terms and conditions have pros and cons, so consider them before buying life insurance.
Conclusion
You have many ways to benefit from your life insurance while you are still alive. You could take out the accelerated death benefit and premiums if you have term life insurance.
Folks with permanent life insurance could get long-term care benefits and cash value withdrawals. Regardless, you should carefully plan whenever you are purchasing life insurance.
Look over these benefits, and look for the policies that provide them. If you already have life insurance, see if your insurer could include these terms in your policy. More importantly, take careful consideration before using these features.
Frequently asked questions
How can you use a life insurance policy while you are alive?
It depends on what type of life insurance you have. For example, you could take out a policy loan or use long-term care benefits if you have a permanent policy.
Does life insurance payout if you don’t die?
Your policy could provide early payouts depending on its terms. For example, it may have clauses that let you withdraw funds for a critical illness.
Are their living benefits to life insurance?
You could take out funds as living benefits depending on your current policy. Speak with your life insurance company for more information.
