Life Insurance can offer much more than a death benefit to protect your loved ones. Were you aware that you can use life insurance while alive? It can give you financial security and tax advantages, or use it when you need the money for an emergency. It can also cover medical bills and other expenses. As you know, life can change unexpectedly. Unfortunately, it is impossible to predict this. The only thing you can do to protect yourself and your family in the best way possible is to prepare for the unexpected. 

This blog will explain how to use it, its benefits, and if it is worth it. There are two types of living benefits: accelerated riders (part a) and building cash value (part b)

Key terms:

What is a death benefit?
When you pass away, your loved ones will receive the amount from your insurance company. They can use it for anything; bills, mortgage, college, and retirement.

What are living benefits?
These benefits can be accessed by the policy owner while still alive. It can lower your death benefit when you pass away. We will tell you how to use living benefits without reducing your death benefit or cash value.

What is a cash value?

With permanent life insurance, you, in most cases, will likely have access to Cash Value. Cash Value accumulates over time and comes with tax advantages such as tax-deferred growth and tax-free cash value. The cash value can supplement retirement income, college savings, legacy, and long-term care.

Part A Which types of Life insurance policies have living benefits (accelerated riders)?

* possible with term, whole, universal, and index life insurance.

Most life insurance policies offer living benefits, called riders, that you can use when you are still alive, if you are critically, terminally, or chronically ill. Riders are additional options or benefits that allow you to customize your policy.

Are you prepared for an unexpected illness? In the U.S., heart disease is the number 1 cause of death. Experts predict cardiovascular disease will grow exponentially globally over the next few years (heart.org). Approximately 39.5% of men and women will be diagnosed with cancer at some point during their lifetimes (cancer.gov).

Now, you probably think that won’t happen to me. Isn’t it better to prepare for something that could happen than deal with the consequences if you are underprepared? In case of an unexpected disease, your expenses will likely go up, your ability to work will go down, and so will your income, leaving you in a challenging position.

An accelerated death benefit rider can help you to prepare for this hardship. It can allow you to afford the treatment or care you need. Most likely, your health insurance won’t be able to cover everything, and you don’t want to use your children’s college fund or all of your retirement savings. It can give financial relief to your family going through this stressful time with you. And wouldn’t you want to be able to enjoy a long and healthy life after your illness? The proper care and treatment you could afford with this rider might be your silver lining.

With this rider, you can receive a part of your death benefit. However, the percentage of money your beneficiary would receive as part of your death benefit could be subtracted by that amount, leaving your beneficiaries with a smaller death benefit if you were to pass away. 

What types of illnesses are eligible for a living benefit?

1. Chronic Illness (unable to perform two of six activities of daily living): you will receive a part of your death benefit in advance. Typically pays a monthly benefit. This rider is not part of long-term care insurance; in this case, you would need to add a long-term care rider to your life insurance.
2. Critical Illness (heart attack, stroke, cancer, end-stage renal failure, major organ transplant): you can get some or all of your death benefits.
3. Terminal illness: typically pays a benefit if you are diagnosed with a terminal disease and your life expectancy is 12 to 24 months. These funds can be used for final expenses, experimental medicine, vacations, or other last wishes.

How much is life insurance with living benefits?

An accelerated rider added to your insurance policy will likely only add $5-$10 per month, sometimes at no extra cost.  Click here to talk to a policy engineer about adding living benefits to your life insurance coverage.

How will you receive the living benefits?

If you have a qualifying illness, the insurance company will pay out the If you have a qualifying illness, the insurance company will pay out the benefit. The first thing you need to do is file a claim with your insurance provider. You might need to submit medical records showing your illness’s severity. Some insurance policies have a 30 to a 90-day waiting period before they pay out the accelerated benefits. The payout could be monthly, annually, or lump sum. There might be an administrative fee when receiving your payout, and your state might have some local taxes, but there are no federal taxes on your benefits. 

Do you still need an accelerated rider if you have health insurance?

Most likely, your traditional health insurance doesn’t cover all the care you need if you get one of the three illnesses mentioned earlier. However, health insurance covers parts that an accelerated rider won’t, so adding a rider should never replace your health insurance. The best way to financially protect yourself and your family is to add extra protection to your policy.

Is it worth it?

Advantages

• Many policies have them built in at no additional cost
• Sometimes you can use them as early as 30 days from the start date of the policy
• Also available if you have a term policy
• Money doesn’t have to be repaid
• It gives peace of mind

Disadvantages:

• May reduce money away from your death benefit 
• Administrative costs
• Sometimes your premium will be slightly higher
• The amount you receive is based on the severity of your health illness
• It might be taxed locally

Not sure about adding an accelerated rider to your policy? Click here to schedule a meeting with one of our policy engineers to get more information or discuss other options, such as; disability insurance or long-term care insurance.

Part B; Building cash value with living benefits.

These are Whole/Universal Life Insurance Living Benefits. These funds can be used as a supplement for retirement income or help to achieve other financial goals such as:

1. Guaranteed, tax-deferred growth.
2. Collateral for policy loans
3. Dividend payments.
4. Flexible funds for retirement
5. College savings.
6. Legacy opportunities.
7. Long-term care.
8. Tax benefits.

How can you use these living benefits?

1. Cash value withdrawal lets you withdraw a portion of the cash value. You don’t have to pay taxes on the amount you take out if the amount is less than or equal to your premium payments.
2. Policy loan. You can take out a loan with a lower interest rate than other lenders.
3. Policy surrender: Canceling your policy to access your cash value. The insurer will pay your cash value minus the leftover premium and loans you took.
4. Long-term care benefits. If you add a long-term care benefit to your whole life insurance policy, you can access your death benefit to cover long-term care expenses. Your death benefit will be reduced by the amount of the long-term benefit you used

These benefits allow you to withdraw cash value or take out a loan tax-free whenever needed. There are many situations where you might need some extra money. Maybe you need another investment for your business, your retirement is taking longer than expected, and you are running out of money, or you want to help your children pay for their college tuition.

Is it worth it?

Advantages

• Money grows tax-deferred 
• Tax-Free
• Withdraw money or take out a loan whenever you need

Disadvantages 

• Only permanent policies
• More expensive than term insurance
• Not yet available for self-enrollment

Click here to get your Life Insurance quote or schedule an appointment with a licensed policy engineer.