iving Benefits Available on Some Term Life Insurance Policies
Living benefits are most often associated with permanent life insurance. However, certain term life insurance policies can be purchased with one or more accelerated benefit riders, which can allow you access to the death benefit while you’re still alive if you become:
- You’re terminally ill. You can receive a portion of your death benefit in advance, for help with medical expenses.
- You’re chronically ill. Frequently you’re considered chronically ill if you can’t perform several of the six activities of daily living, such as getting out of bed, feeding yourself, bathing, and so forth.
- You’re critically ill. That could mean you’ve been diagnosed with a heart attack, stroke, cancer, end stage renal failure, major organ transplant, or some other pretty grim illness.
That means, for example, if you have a $125,000 death benefit, and you receive $80,000 prior to your death because you qualified under one of these riders, when you actually do pass away, the insurance company will pay only the remaining $45,000.
Living Benefits Available on Many Permanent Life Insurance Policies
The accelerated benefit riders available for most term life insurance policies, are also available for most permanent life insurance policies. In fact, most permanent life insurance policies offer living benefits that go far beyond what’s available with term insurance.
Permanent life insurance policies can do this because they build equity, called “cash value,” that accumulates over time. This accumulation of cash value, along with tax advantages available with a permanent life insurance policy, allows you to enjoy “living benefits,” including:
- Guaranteed, tax-deferred growth. With a permanent life insurance policy of the whole life variety, your cash value is guaranteed to grow and to never decline in value. It contributes to your financial security with stable yet consistent growth that supports your financial goals.
- Collateral for policy loans. The cash value you accumulate is an asset on your balance sheet. You may borrow money against your policy, using the cash value and death benefit as collateral, at any time and for any reason. Some examples include: Purchase a home, Investments – business/commercial property, alleviate financial emergency, Provide a steady stream of supplemental income in retirement.
- Dividend payments. Though they are not guaranteed, some insurance companies have paid dividends every single year. You can choose to take the dividends in cash, use them to pay back a policy loan, or use them to purchase additional insurance (known as paid-up additions) that increases the death benefit and cash value of the policy. Like other cash value, reinvested dividends grow tax-deferred.
- Flexible funds for retirement. You can use your permanent life insurance cash value to supplement your retirement income without the requirements and limitations that apply to 401(k) and IRA retirement accounts. You have several choices, including receiving your dividends in cash, surrendering paid-up additions that you purchased along the way, or taking a policy loan (all of which may have tax consequences or affect the death benefit).
- College savings. Life insurance cash value is one of the few assets not considered in federal college financial aid calculations. Families with college-age children who have permanent life insurance policies not only can use the policy’s cash value (via policy loans) to pay college tuition and housing expenses, but also might benefit from greater financial aid opportunities, compared with families with a similarly-sized 529 Plan.
- Legacy opportunities. There are many opportunities to leave a legacy through life insurance in addition to providing for your spouse, family and other heirs. If you have a favorite charity or local cause, you can fund a legacy gift with a life insurance policy, naming the organization as beneficiary.
- Long-term care. Some states allow insurance companies to offer hybrid policies that include a long-term care benefit, along with the regular death benefit.
- Tax benefits. Permanent life insurance offers many tax advantages, including tax-deferred growth on cash value accumulation, tax-favored access to cash value up to the life insurance policy’s basis, and income tax-free distribution of death benefits.
As you can see, there are many more benefits on Permanent Life insurance – However, everyone’s needs are different and will have different financial goals.
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