How to Use Life Insurance While Alive

Shawn Plummer

CEO, The Annuity Expert

Are You Supposed to Use Life Insurance While You’re Alive?

First, let’s debunk the most common myth: life insurance isn’t solely meant for post-death benefits. Several life insurance policies come with features called ‘living benefits.’ These benefits provide access to your death benefit while you live under certain conditions.

For instance, you may tap into these benefits to cover your medical expenses if you have a chronic, critical, or terminal illness. Or, in some cases, you may use them for any reason you see fit. Yes, it’s your money; you can use it when you need it most.

How to Use My Life Insurance While I’m Alive?

You can access your life insurance’s living benefits through several methods. Let’s discuss these in detail:

Cash Value Withdrawals

Some types of life insurance, like whole life or universal life, build up a cash value over time, which you can borrow against or withdraw from. You can use this money for whatever you like—home renovations, funding your child’s education, a much-deserved vacation, or even supplementing your Social Security benefits.

Accelerated Death Benefits

Many life insurance policies offer an Accelerated Death Benefit (ADB). This feature allows you to receive a portion of your death benefit early if you’re diagnosed with a terminal illness or require long-term care.

Imagine being diagnosed with a critical illness. Instead of worrying about medical expenses, your Accelerated Death Benefit can cover these costs, leaving you to focus on your health and recovery.

How To Use Life Insurance While Alive

What Type of Life Insurance Can You Borrow While Alive?

Not all life insurance policies offer the same living benefits. You can borrow from permanent life insurance policies like Whole Life and Universal Life. These policies accumulate a cash value over time, separate from your death benefit, that you can borrow against.

For example, suppose you’ve had a whole life insurance policy for 20 years. Over these years, your policy would have built up a substantial cash value. You can borrow against this amount, using it for anything you desire, without any questions.

Can You Use Life Insurance Before You Die?

Absolutely! Specific life insurance policies allow you to access a portion of your death benefit through the policy’s living benefits. This option is typically available if you are diagnosed with a terminal illness, require long-term care, or are under certain other qualifying events.

Consider a hypothetical scenario where you suffer a severe accident, leaving you needing long-term care. With the living benefits in your life insurance, you can access funds to manage your care costs without touching your savings.

Use Life Insurance While Alive

Can You Cash Out Life Insurance While You’re Alive?

Yes, you can, but it depends on your life insurance type. Policies with a cash value component, like whole or universal life insurance, allow you to cash out or surrender the policy, thereby receiving the accumulated cash value. Remember, cashing out your policy means forfeiting the death benefit for your beneficiaries.

For instance, if you’re retiring and your kids are financially stable, you might cash out your life insurance policy and use the money to enhance your retirement lifestyle.

Next Steps

Life insurance is more than a death benefit; it’s a financial tool you can use strategically to navigate life’s unforeseen challenges. Whether it’s cash value withdrawals, accelerated death benefits, or borrowing against your policy, life insurance can offer more immediate financial solutions than you might have imagined. Remember, the key is to fully understand your policy’s features, align them with your needs, and make them work for your benefit while you live. Life insurance is about ensuring peace of mind for the future and enriching the quality of life today.

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Frequently Asked Questions

How do I cash out my life insurance policy while living?

If you wish to cash out your life insurance policy while you’re still living, begin by contacting your insurance provider. They can guide you on either surrendering your policy or accessing living benefits. Ensure you complete any required paperwork. Once done, you will receive a payout, which might be subject to taxes. Be aware that once you cash out, your coverage will come to an end. Always consider consulting with a financial advisor before making such decisions.

How soon can you borrow against a life insurance policy?

If you have a whole life insurance policy, you can use it to borrow money. But there are a couple of things to remember. First, you need to have the policy for some time before it has enough value to borrow against. Second, when you borrow, it’s like taking out a loan. If you don’t pay it back, along with the interest, the amount you get when the policy pays out will be less than that borrowed amount and the interest accrued.

*Disclosure: Some of the links in this guide may be affiliate links. I may receive a commission at no cost to you if you purchase a policy. It helps us keep the lights on!

Shawn Plummer

CEO, The Annuity Expert

Shawn Plummer is a licensed financial professional, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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