What Benefits Can a Life Insurance Policy Provide While You Are Still Living?

Mike Valles By Mike Valles, 10th Apr 2014 | Follow this author | RSS Feed | Short URL http://nut.bz/-ll4pzss/
Posted in Wikinut>Money>Insurance

Some of the primary benefits of some whole life policies can be enjoyed while the insured is still alive. This includes borrowing some of the cash value, getting money for retirement or long-term care, and possibly for as accelerated death benefits. Article also mentions that some of the money may be tax free, and a caution is given that the face value of the policy is reduced when money is borrowed from it.

Introduction

When buying a life insurance policy, the most common thought is about preparing for the event of your death and ensuring that your family is financially going to be taken care of. This, of course, is the most common purpose of life insurance. There are, however, some ways that you could possibly benefit from your life insurance policy after you have held onto it for a while – and are still alive.

The features that are mentioned in this article only apply to whole life, or the permanent life type of life insurance policies. Term life will not give you any other benefit other than providing you with low cost life insurance.

Access to Cash When Needed

Most traditional whole life insurance policies will have a cash value that builds up over time. There will be zero buildup in the first couple of years due to the paying of commissions, but then it will slowly increase and become sizable over time.

Some of the cash value becomes available for the policy owner to withdraw in an emergency, and the amount you can withdraw is placed in charts within the policy itself. As long as the premiums are always paid, the charts accurately indicate how much cash value you have and how much you can withdraw. There are two values that will be given in your permanent life policy – the cash value and the surrender value. The cash value is the amount that is available for withdrawal without affecting the continuation of the policy, but it does affect the face value. The surrender value is the total amount of cash you will get if you terminate the policy.

Use Cash for Retirement or Other Needs

Once you reach retirement age, you could withdraw the cash value amount and use it for retirement. The money could be used to pay off any remaining bills you might have, and then you can draw a little off at a time to supplement your social security income.

Some life insurance policies have an option where you can choose to receive monthly payments each year. These insurance benefits would start at the age you choose, but you would most likely have to wait until you are at least 65 years old.

Some of the Cash Value Is Tax Free

When you take out the cash value, there will be no taxes on the amount that you paid into the policy in your premiums. It is the amount of interest earned above this value that you will need to pay taxes on, but only after the money is withdrawn.

Let the Policy Pay for Itself

Once there is enough cash in the cash value, there is enough earned in interest each month that could pay your premiums each month. This would enable your policy to remain in effect without you having to pay any more premiums. Many permanent life policies have this option, but some conditions may apply. You may also need to purchase this feature as a rider on the policy if you want it.

Get the Cash in Extenuating Circumstances

With some permanent life insurance policies, you can get an advance on the death benefit. It is called Accelerated Death Benefits (ADBs) and the money is tax free, but there are some conditions that must be met in order to qualify. ADBs may be a rider that is paid for, or it may be a free part of the policy. The requirements to receive this money, which could be between 30 to 95 percent of the death benefit, may include being diagnosed with a terminal illness, needing long-term care services, or moving permanently into an assisted living situation and being incapable to take care of yourself. There may be a cap in the policy of how much of the policy's value can be used for an ADB, which could be around 50 percent, or it could be as much as the full face value amount.

The amount of money that is available for long term care services may not be sufficient to totally cover those costs. It is probable that the payments will be less than those that a long term care insurance policy would normally provide. Also, it is possible that ADB payments may affect your ability to get Medicaid.

Something to Remember About Permanent Life Insurance Policies

It always needs to be remembered that when you withdraw money from a life insurance policy that that amount is subtracted from the death value, along with interest, if it is not repaid. This means that if the amount borrowed is not repaid, then the amount you owe continues to grow larger, and your death benefit is decreasing by that same amount. Also, in many policies, when a death occurs, only the face value is paid – not the cash value. Unless your policy states otherwise, which some do, you can be sure that you will not receive both.

If the death benefit is necessary to provide ongoing support for a spouse or other loved ones if you should die, then borrowing the cash value is probably not a good idea – unless you are sure that you can pay it back soon. Any withdrawal of money from a permanent life insurance policy should be carefully weighed to determine if other money may be available for your immediate needs.

Tags

Insurance Benefits, Life Insurance, Permanent Life, Whole Life

Meet the author

author avatar Mike Valles
Hi. I have been a full-time freelancer for over 9 years. Most of the material I write on deals with personal finances, education, and news. I am a published author with a book and several eBooks.

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Comments

author avatar writestuff
10th Apr 2014 (#)

Interesting, informative article. Thanks for this post.

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author avatar Mike Valles
10th Apr 2014 (#)

Thanks. I appreciate it. Glad you stopped by.

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