Life Insurance and “Living Benefits”
Though the intention of life insurance is usually to give financial stability and benefit to your beneficiaries in the event of your death, there are ways to enjoy some of the benefits of life insurance while you’re alive. But, to understand if these benefits could be used during your lifetime, it’s important to know the kinds of life insurance that exist and which offer these “living benefits.”
To begin with, there is permanent and term life insurance. While term insurance is only active and relevant for a specific number of years (such as a 5-, 10-, or 30-year term), permanent is valid indefinitely until the policy is activated by the death of the insured. Permanent insurance also comes with more potential for giving to your beneficiaries through cash value that accrues money as you pay premiums.
Both of these kinds of insurance can come with living benefits rather than merely the traditional and well-known death benefit. However, for each type of insurance, living benefits vary. Let’s explore what these benefits might be whether you choose a term or a permanent policy.
Living Benefits through Permanent Insurance
When you choose whole life insurance, you gain access to a savings vehicle known as cash value. This component of the most popular form of permanent life insurance is usually seen as an important commodity in part because you can use it while living. In addition to that, it is itself a very useful financial tool.
To say more, the cash value element of whole life insurance is tax-deferred, meaning you won’t be taxed on the accrual as it grows. Even if you withdraw an amount while is less than your typical premium, you still don’t pay taxes on the money. You’ll only pay taxes when you withdraw an amount of money from interest, dividends, or gains. There are ways to avoid these taxes while alive as well.
Should you choose to borrow against your cash value, you won’t pay taxes on the loan money. You can typically borrow at a much lower interest rate than you might otherwise get from a bank or other financial institution not holding your policy. Without the same application process or need for a credit check, you can access a loan for all kinds of expenses if you don’t prefer to withdraw your funds and face taxation.
Beyond cash value, life insurance policies like permanent, whole coverage can come as add-ons. For example, a long-term care add-on can allow you to draw from death benefit funds to pay for care expenses during your life. The amount is simply subtracted from the death benefit.
Living Benefits from Term Life Insurance
Term life insurance won’t bring the benefits of cash value savings and borrowing. Instead of this, term insurance can add living benefits through riders. A rider adds perks to life insurance policies for a slight addition to the usual premium. According to the company and your situation, riders can be selected for situations you might find useful in the future. (You can apply riders to whole and other permanent policies too.)
Also known as an accelerated death benefit, with this rider, you can pay part of your death benefit out early. This benefit can be used when you’re diagnosed and treated for a terminal illness, helping to mitigate healthcare costs associated with end-of-life care. Still, remember that with this rider, you are withdrawing from the death benefit that will ultimately go to your beneficiaries.
Since term policies only last a certain amount of time, you can outlive your 20- or 30-year term policy. Some might view this as a waste of resources, but they can always add a rider at the start of the policy to ensure that you receive all your premiums back if your policy never pays death benefits.
When you’re diagnosed with a long-term disability of six or more months, you can stop paying premiums with a disability waiver of premium rider. This can be useful for many Americans that find themselves unable to work due to injury or illness each year.
Finally, through a guaranteed insurability rider, you’ll be able to buy additional insurance coverage without having to undergo another medical exam. If you anticipate changes in your lifetime, this can be useful as you start a family or get married, especially if your health is likely to decline.
Find Life Insurance with Living Benefits
Now that you see many of the ways you can use your life insurance during your lifetime, try Sproutt to get life insurance quotes. You’ll see how you can get living benefit riders and use cash value to create a solid financial safety net.