Most people hear the words “life insurance” and think they must die to get any benefit from it. We are here to bust that myth and provide a few examples of how you can gain a benefit from life insurance before you pass away.
Living Benefit or Critical/Chronic Illness Rider
Living Benefit is an option (otherwise known as a rider) on some life insurance plans that allows a portion of the death benefit to be forwarded to the policy owner in the event of a critical or chronic illness. This can help you and your family pay for long-term care or other healthcare needs without having to use that precious retirement nest egg you have worked so hard to build.
Permanent / Whole Life Insurance Cash Value
Speaking of nest eggs, did you know that certain types of life insurance can be used to save for retirement? These types of policies, typically whole life or universal life, fall under the “permanent” life insurance umbrella. This meaning if you keep paying premiums, you have life insurance coverages that can convert to cash value. The cash value can grow in a variety of ways depending on the type of life insurance contract you have. Some contracts have a guaranteed rate of return, while others follow an index (such as the S&P 500) to determine your rate of return on the cash value portion of the policy.
Ways to Access the Cash Value of your Life Insurance Policy
If you have a permanent life insurance policy and want to access the cash value, you have some options:
- Withdrawals – Generally, you can withdrawal funds from the cash value of your policy tax-free up to the amount you have paid in premiums to date.
- Loans – You have the option to borrow against the cash value of a permanent life insurance policy. You will be charged the interest rate state in the policy. Payment of the loan is optional. However, if you fail to make payments, the death benefit of the policy will decrease.
- Surrender – When you surrender a life insurance policy, the entire cash value is withdrawn. If you do this, you cancel the policy entirely. Therefore, this is only recommended as a last resort after exhausting other options.
Sell Your Policy – Life Settlement
You may not know that it is also possible to sell your life insurance policy. It doesn’t even have to be a permanent policy. This is typically referred to as a life settlement. The value of your life insurance policy is influenced by several factors, including: your age, length of time left on the term (the time until the contract is paid up), cash value in the policy, current health condition and type of options or riders included in the policy.
To learn more about your existing policies, we can offer a review to determine the living benefits that your policies may or may not have. To inquire about investing in a new life insurance policy, contact our experts who can answer all your questions and help you navigate the options that work best for you and your family.
|Chris Rice, CFP®, CPA/PFS
Executive Benefits & Financial Services Consultant
|Denny Lankford, CLU, CHFC
Senior Vice President