How to Use Life Insurance While Alive

Shawn Plummer

CEO, The Annuity Expert

Buying life insurance can be daunting. Life insurance is often thought of as only necessary after passing away, but with some strategic planning, it can become an essential tool while you’re still alive. Whether you’re young and just starting in life or already have wealth accumulated throughout your career, understanding how to use life insurance can make all the difference when planning for both now and in the future. This guide will explore the numerous ways that life insurance can be leveraged for more than providing a death benefit.

How to Choose the Right Life Insurance Policy Type?

Before using a life insurance policy as an investment tool, you need to know how much life insurance you need and purchase the right policy for your needs. To do this, you need to consider your life stage and lifestyle. For example, if you are young and don’t have any dependents, then a term life insurance policy may be the best choice. However, a whole life insurance policy may be better if you’re married with children and looking to build cash value.

When choosing a life insurance policy, make sure you choose an amount to cover your financial obligations in the event of your passing. You should also consider any related riders or additional coverage options that may benefit you and your family. Additionally, consider the premium amounts associated with each policy. In contrast, term policies tend to have less expensive premiums in the short term, and whole-life policies can provide more stability and flexibility and potential growth opportunities through investments.

What’s Better: A Term Life Policy or Permanent Life Insurance?

Regarding life insurance, the two major categories available are Term Life Insurance and Permanent Life Insurance. Term life policies provide coverage for a specific time, generally from one to five decades or more. These policies typically offer the greatest coverage for the lowest premium payment and don’t have any cash value.

On the other hand, permanent life insurance, such as a whole or universal life insurance policy, provides coverage for a lifetime, regardless of life expectancy. These policies can provide more flexibility than term life policies regarding the death benefit payment, and many of them also accumulate cash value over time.

Permanent life insurance is likely your best bet if you search for a way to invest and accumulate cash value. On the contrary, if you only need temporary coverage at an affordable expense, you may opt for term life insurance instead.

Ultimately it is essential to fully understand your needs before deciding which type of policy makes sense. But, again, an experienced life insurance agent can help guide you in making this decision.

What Are The Benefits of Whole Life Insurance?

Whole life insurance is a permanent insurance policy that remains active throughout the insured’s life. It provides coverage to the beneficiary upon death and can also be used as an investment tool, providing tax-deferred growth potential, depending on how it is structured. Additionally, your whole life can provide you with financial security and stability in retirement.

The primary benefit of a whole life policy is the guaranteed death benefit, which provides a predetermined amount of money to the designated beneficiary upon the insured’s death. This lump sum payment can be used for many different purposes, such as paying off any outstanding debt or helping support surviving family members.

Another advantage of whole life is its potential for tax-deferred growth. When structured as a ‘cash value’ policy, any premiums paid beyond the cost of the death benefit go towards a savings account within the policy that can build over time. Furthermore, dividends (payouts from profits earned by the life insurance company) may be received and reinvested into this savings account, allowing it to grow tax-free.

Whole life insurance policies also have the potential to be borrowed against in times of need. Depending on the policy, you may be able to access a portion of your policy’s cash value and use it as collateral for loans. Additionally, whole life offers protection against inflation, as the death benefit amount is fixed and will grow over time.

What Are Living Benefit Riders?

Living benefit riders are insurance policies you can purchase in addition to a life insurance policy. These riders provide an income stream if you become critically or chronically ill, if you suffer a disability, or even if you die prematurely. They may also provide access to accelerated death benefits and the ability to access your death benefit while still alive.

The types of living benefit riders available will vary depending on the life insurance company and may include:

  • Accelerated Death Benefit Rider
  • Chronic Illness Rider
  • Disability Income Rider
  • Waiver of Premium Rider
  • Return of Premium Rider

Living benefit riders can be a great way to provide additional financial security for both you and your loved ones. Still, it’s important to carefully explore all available options to ensure the right coverage for your needs.

Before adding any riders to a life insurance policy, consult an experienced agent or financial advisor who can help you weigh the pros and cons of each option.

What is an Accelerated Death Benefits Rider?

Suppose you would prefer to access a portion of your life insurance death benefit before the end of your lifetime. In that case, an Accelerated Death Benefit Rider is the ideal solution for you. This rider can be added to most policies and provides financial assistance in times of terminal illness or long-term care needs, giving policyholders peace of mind when needed.

Unpredicted circumstances can cause everyone a tremendous amount of stress. Still, with this invaluable addition to your life insurance coverage, you no longer have to worry about burdening your loved ones. In addition, this rider is a significant financial safety net for those with major health issues. It can help pay medical bills or provide the means necessary to sustain quality living conditions.

When activated, the accelerated death benefit rider reduces the benefit payout to the beneficiary upon the insured’s passing.

The amount available from an accelerated benefits rider will vary depending on the type of policy and insurer but typically ranges between 35-80% of the total benefit amount. Likewise, the costs associated with this rider depend on the insurer but typically range from 0-10% of the total death benefit.

If you’re considering a life insurance policy with an accelerated death benefits rider, it’s essential to review your options and discuss them with your insurer before making a decision. Understanding the cost and benefits of this rider is essential to ensure that it can provide the protection you’re looking for.

What is a Chronic Illness Rider?

A chronic illness rider allows you to receive a one-time payment or an ongoing income stream in case of chronic illness. It is an add-on to a life insurance policy that can provide financial protection in the event of a severe disability or chronic illness.

The rider pays you benefits after your doctor has a certified diagnosis of a qualifying condition, such as cancer, stroke, heart attack, and other conditions listed in the policy. The amount of money you receive depends on the specific terms of your policy.

Chronic illness riders are designed to supplement traditional life insurance, not replace it. They protect people who may become disabled and unable to work due to a chronic illness. If you become chronically ill and can no longer work, these benefits can help you pay for essential medical expenses or cover everyday costs such as food, housing, and utilities.

What is a Disability Income Rider?

A disability income rider is a valuable add-on to a life insurance policy offering financial security if the insured experiences total and permanent disablement. This supplementary provision can provide helpful supplemental payouts during incapacitation, ensuring you don’t need to be concerned about your finances when pursuing recovery from illness or injury.

While the terms and conditions of these riders vary, they typically offer a monthly payment (or other forms of income) to assist with everyday living expenses until you can return to work. The coverage provided may also be customizable depending on your particular needs. For example, in addition to providing financial security during disability, some policies may include additional benefits such as accelerated survivor benefits or reimbursement for medical expenses.

No matter how comprehensive your life insurance policy is, it can be difficult to predict all the unexpected costs associated with disability or illness. A disability income rider provides an extra layer of protection so that you and your loved ones have less worry in these trying times.

What is a Waiver of Premium Rider?

With a waiver of premium rider, life insurance companies will pause your insurance premiums for the duration your disability qualifies. This add-on service is an optional additional benefit to any life insurance policy and allows one to take this break from payments without risking their coverage.

This rider is beneficial to those who may be out of work, as it prevents them from having to pay premiums while they are unable to earn a living.

To qualify, you must have suffered an injury or illness that leaves you disabled and unable to work, at least temporarily. This provision can provide some much-needed financial relief during these difficult times.

What is a Return of Premium Rider?

A Return of Premium Rider can help you get your money back. This rider allows the policyholder to receive a refund of all premiums paid for term insurance if they don’t pass away during the specified period. In other words, with this provision, you spend nothing and instead accomplish something – peace of mind when planning for your family’s financial security.

Don’t forget that many people refer to policies with return-of-premium provisions as “return-of-premium life insurance.” As a term-policy holder, you should seriously consider this rider. It can give you the confidence to know that your family is taken care of and could even save you money in the long run if you outlive the specified period!

What is a Long-Term Care Rider?

Enhance your life insurance policy with a long-term care rider that allows you to access funds while still alive. If unfortunately, illness or injury occurs and you need assistance completing activities of daily living (ADL), the rider’s payout can be used for home health services and assisted living expenses. To qualify, two out of six ADLs must not be able to independently complete themselves. Typically 70-80% of death benefit is allocated monthly towards covering these costs – ensuring financial support when needed most!

Depending on the insurer, you can choose the percentage (from 1% to 3%) you’d like to receive each month if the rider is activated. It’s important to note that if you need comprehensive care, you won’t be able to rely on a long-term care rider solely. While the rider covers the cost of home health care and assisted living, it won’t pay for doctor’sdoctors’ visits, prescriptions, and surgeries, usually covered by health insurance or Medicaid.

When Can You Expect to Receive a Payment from Your Life Insurance Policy?

There are different types of life insurance. Some last for 10, 20, or 30 years. This is called term life insurance. If you die while the policy is active, your family will get money from the insurance company.

Whole life insurance provides you with a lifetime of financial security, enabling you to live without worry. By simply meeting your payment requirements, this policy will remain in effect until the end – no matter what happens. With whole life insurance coverage backing you up, there is assurance that help will be available for those who are left behind when it matters most.

As mentioned, adding on a rider is an ideal option for those seeking insurance that provides a payout while still alive.

What Is “Cashing Out” A Life Insurance Policy?

Cashing out a life policy means surrendering your policy in exchange for a one-time lump-sum payment. The payout amount depends on several factors, including your policy type and its cash value. Therefore, it is essential to calculate all associated costs before deciding to cash out your policy.

For example, if you have a whole life policy with term riders, the cash value will likely be higher than cashing out an individual policy with no additional riders. Additionally, there may be taxes on any portion of the proceeds that goes beyond your basis in the policy. Therefore, if your policy has grown over time and has greater value than what you paid, you may have a large tax bill due.

In general, cashing out an insurance policy is something you should only consider as a last resort because of the potential to lose money in the process. If you consider cashing out a policy, talk to an experienced financial advisor or accountant first.

Can You “Cash Out” A Term Life Insurance Policy?

Term life provides coverage for a predetermined time, such as 10, 15, or 20 years. As the term is limited, these policies are more affordable than whole-life ones. However, compared to its counterpart policy type, it does not accumulate any cash value meaning that you cannot access your money by cashing out a term plan.

In some cases, you may be able to convert a term life policy into a cash value policy such as whole life. This allows you to access the funds accumulated over time. However, this option is usually only available during the initial period of the policy and before it expires. This means that if you decide to convert after the term period has ended, you will not be able to access your money.

When considering a term life policy, you must understand that you cannot cash out the policy when it ends.

What Are “Living Benefits” with Life Insurance?

Life insurance is not just meant to cover funeral expenses or provide your beneficiary with a death benefit. Living benefits, or “alive life insurance”, permit you to draw funds from a policy’s benefit while still alive. You can use these finances for various terminal or chronic illness-related costs, including medical bills and caretaker services, whether in-home or at a nursing residence. This option helps individuals maintain independence and dignity during difficult times.

In some cases, this benefit can also help offset the cost of medical treatments such as chemotherapy, radiation therapy, and physical rehabilitation that are not covered by existing health insurance plans. Additionally, they can provide peace of mind to policyholders who may worry about leaving their loved ones financially vulnerable in the event of an illness or injury.

Living benefits are not just for the policyholder; these alive life benefits can also be extended to their family members. For example, the funds from a living benefit may be used to cover funeral costs or provide a stipend for loved ones who take on caretaker responsibilities in times of need. These options can help ease the financial burden on families during a crisis.

Living benefits are worth considering for anyone looking for flexibility and security in their long-term care planning. With this option, policyholders can ensure they have access to funds when needed while leaving an inheritance or other benefit upon death.

Needing affordable help with estate planning needs? We recommend:

Ways To Access A Life Insurance Policy Before Dying.

How Do You Get Cash Out of Your Life Policy Through Living Benefits?

If you have a life policy, you may be able to get cash out of it through the living benefits option. These policies are designed to help policyholders access some of the cash value in their policies before death. Depending on your policy type and coverage, you may be able to use this money for expenses such as long-term care costs, medical bills, home improvements, and more.

To get cash out of your policy through living incentives, you need to speak with your insurance company and provide them with the necessary paperwork. This usually includes a completed application form, proof of identity, and income. You must answer all questions accurately and provide all the required documentation to ensure your application is approved.

Your insurance company will then evaluate your policy and determine if it qualifies. Depending on the type of policy you have, you may be able to get a lump sum payment or access a portion of the cash value over time. Once approved, the money will be deposited directly into your bank account or mailed to you as a check.

It is important to note that accessing your policy through living benefits may affect your policy’s death payout. In addition, your premiums and coverage amounts may also change, so it’s essential to speak with your insurance company beforehand so you understand the implications of withdrawing money.

What Happens if You Surrender Your Life Insurance Policy?

By surrendering your policy, you will end its coverage and receive its cash value minus any associated fees. Unfortunately, should something happen to you in the future, this option means that none of your beneficiaries will receive a death upon your passing.

As previously mentioned, another option is to use living benefits. This feature allows you to access cash out of your life policy while alive to leave a survivor benefit for your loved ones when the time comes.

Next Steps…

Life insurance is not just for death. You will want to maximize all the cash value of your policy. Even if you are not in the market for a policy, there are a few ways to take advantage of some of its features, like cash value and accelerated benefits options, while alive.

Ultimately, exploring various policy options with the best life insurance benefits and speaking to an expert before signing off on your chosen plan is essential. Life insurance can grant you added reassurance and financial protection while supporting your family when the unexpected happens. In addition, making sure you have an adequate life plan will help ensure that the ones you love most feel supported during times of distress that would otherwise be unmanageable.

How To Use Life Insurance While Alive.

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

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

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

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