The "Living Benefits" of Life Insurance
The first thing that comes to mind when life insurance is mentioned is probably how it benefits your loved ones after you are gone. You may have purchased, or plan to purchase, life insurance to cover the cost of final expenses and healthcare charges, pay off a mortgage and other debt, send your children to college, cover ongoing living expenses, and provide financial security for your loved ones in the event of your death. It is easy to recognize the valuable role life insurance plays in providing a death benefit. But have you considered how life insurance can help you while you are still living?
1. Available Cash
Term life insurance policies do not accumulate a cash value, but many permanent life insurance policies do. While it may take several years to accumulate, when the money is available the cash value of a life insurance policy can be a quick and easy way to get cash in hand when you need it.
A. Borrow money -
When you purchase a permanent life insurance policy with cash value, the premiums you pay are divided up into two portions: 1) The first part of your premium goes toward basic insurance policy expenses. 2) The second part of your premium acts as a type of investment that accumulates cash value. Over time, the cash value that grows can become a source from which you may borrow money. Following are a few general tips about borrowing money from your life insurance policy. Ask your licensed insurance advisor for the specifics of your plan.
Many plans allow the insured to borrow up to 90% of their policy's cash value.
There is generally no hard credit check when applying for a loan from your life insurance policy.
The money you borrow is tax-free, as long as the amount borrowed is not greater than the amount that was paid in premiums.
Some policies do not require the loan to be repaid. Instead, the amount borrowed (if not repaid) would be deducted from the death benefit. However, many companies required that a percentage of interest must be paid back monthly. (Check your policy's terms.)
No additional collateral is required, the policy is used as collateral for the loan.
B. Supplement your retirement income -
In the happy event that you (and your spouse, if you have one) live to a ripe old age, you may need an income to supplement your Social Security or other retirement benefits. There are some permanent life insurance plans that could be used to meet this need. You will also want to talk to your advisor about annuities, which are often structured to provide a life long income stream. Since none of us knows how long we will live, it can be challenging to plan financially for your retirement. This is where a steady life long income from an annuity comes in handy.
2. Protect against disability
An accelerated death benefit rider provides another "living benefit." It may be available to purchase with either a term life insurance policy or a permanent life insurance policy. This rider allows you to access money from the policy's death benefit (sometimes up to 80%) while you are still alive, if you have a qualifying event. Following are some examples of qualifying events. Talk to your licensed insurance advisor to understand which of the following events your rider covers and the details of each event.
Terminal illness- a terminal illness rider is often included in life insurance policies without an extra fee. Ask your licensed insurance advisor if this is true of your policy. Terminal illness is when you are given a diagnosis with a short life expectancy (possibly 6 months to 2 years, for example). This rider would free up money from your life insurance policy to go toward the expenses associated with your end of life care.
Chronic illness- a chronic illness diagnosis is given by a doctor when a disease or disability prevents you from performing your activities of daily living (ADLs): bathing or showering, dressing, getting in and out of bed or a chair, walking or transferring, using the toilet, and eating.
Critical illness- examples of a critical illness may be a heart attack, stroke, kidney failure, cancer, paralysis...something that shortens life expectancy and incurs high treatment costs.
Long term care- when your doctor agrees that long term care services are needed and you are unable to perform at least two of the above listed ADL's, you could submit a claim to your insurance company asking to access the benefits of this rider.
Life insurance is typically purchased to provide financial peace of mind and to leave a legacy. It is a very selfless and loving decision to take care of your family when you are gone. Now it is possible to use life insurance to also help yourself. You can access cash as a loan, draw money to supplement retirement, or in the unfortunate event of a terminal, chronic, critical or long-term illness you can withdraw money for your own care.
This is a good time to look at your life insurance policies through a different lens and make sure you are taking full advantage of what is available to you. If you need assistance, give Bozer Financial Solutions a call at (941) 315-5801. We are happy to help you.