Life insurance provides a financial benefit to the policyholder’s dependents on their premature or unexpected death. The insurance company pays a certain amount, often called a “death benefit,” to the family members.
Many buy life insurance to ensure their family members have financial coverage in case of an accident or the insurer’s death. According to a study, around 54% of Americans have life insurance and usually believe it can only be encashed in case of death.
However, the truth is that there are few ways to use your life insurance money while you are alive. So, consider it an asset instead of a liability or monthly bill.
The Three Living Benefits of Life Insurance
Life insurance can benefit people in many ways; they can use it to pay loans, pay for education, provide for family dependency, and various other expenses. These benefits come after the policyholder’s death, but they can also have financial help from life insurance when they are still alive.
Before discussing the three conditions, you must know they have pros and cons and also depend on your insurance company policies:
1. Applying for Living Benefits
Most life insurance policies come with living benefits, which may mean an extra cost or insurance rider, also known as policy additions. These benefits allow you to have a portion of death fund benefits that are usually up to 50% or more, depending on the insurance policy and purpose of long-term care.
Some insurance policies include acquiring assistance for long-term care. They may ask you to provide information on activities of daily living (ADL), and they may see if you require assistance for more than one ADL.
Death benefits can range from 25% to 90%. These funds can help pay for illness and medical care expenses. Acquiring living benefits include submitting a claim to the insurance provider. They can require medical and other documentation.
The following are example of living benefits:
- You can use the funds to pay for chronic illness if you cannot perform ADLs set by the insurance provider.
- You can withdraw from living benefits funds if you have a critical illness that lowers your life expectancy and has high medical costs. These examples include severe issues like stroke, heart attacks, and kidney failure.
- If you cannot perform some activities outside of ADL guidelines by your insurance service provider and need long-term care, you can use the living benefits funds to pay the expenses.
2. Tap Into Its Cash Value
Life insurance typically comes in two different forms:
- Term life insurance
- Permanent life insurance
Term insurance is cheaper when it is compared to permanent life insurance. The term life insurance payout is a death benefit when the policyholder dies, while permanent life insurance has an investment component that builds a cash value over time as you make premium payments. You can avail the following benefits from permanent life insurance plans:
- Use the cash value to pay your premiums;
- Withdraw an amount from the cash value – it can change the death benefits and policy premiums;
- Acquire a loan from the cash value. There is no repayment schedule for the loans, and they accumulate in interest charges that can reduce the death benefits. Rules can differ by company; and
- Surrender the policy. It means canceling the insurance plan and collecting cash. The policyholder should be sure that they do not need life insurance coverage.
Many people prefer permanent life insurance because it lets you have coverage and cash value, which means the policyholder can withdraw money anytime and for any reason. By taking the correct measures, the withdrawal amount can be tax-free. However, you must know that most permanent life insurance policies do not have cash value until the second or first year of acquiring the policy.
3. Sell Your Insurance Policy
You can also sell your life insurance policy, but this method has disadvantages. Life insurance costs you more as you get older. If you need your life insurance coverage later, selling it is not a good option.
Selling life insurance should be the last option. When you are willing to sell, the investor will buy the insurance on a percentage of the death benefit and get the decided amount when the policyholder passes away. Moreover, the amount you get is not tax-free. You have to keep some amount aside for the taxes.
Get the Best Insurance Policies From JMG Insurance Agency
Getting a good life insurance policy may not be easy. Let our experts help you find the best options for you. Get a life insurance policy with the guidance of our specialists at John M Glover Insurance. We will protect your assets, maximize returns, and offer timely support anytime and anywhere.