How You Can Use Life Insurance in Your Lifetime
Life insurance is most well known for its position as an important resource for families to use to cover funeral costs and other expenses when a loved one passes; but, did you know that life insurance has helpful benefits you can take advantage of while you’re alive as well? Many aren’t aware that their life insurance policy can be utilized as a helpful financial strategy while they’re alive as well.
If you were previously unaware of these additional life insurance benefits, and are looking for new ways to help your budget and savings goals, take a look below at how you can use life insurance in your lifetime to benefit you and your family.
Living Benefits Explained
Living benefits are a portion of your life insurance plan that can be paid out while you’re still alive, dependant on your health and other situations. This is not a benefit type that is included with every insurance policy, however it can be a useful one if you need to replace missed income due to a life-change or if you have health care costs due to a medical condition resulting from a terminal illness, sudden illness, or a chronic illness.
How to Use Your Plan’s Cash Value
When you have a permanent or whole life insurance policy (a policy meant to cover you and your loved ones for life) you do have the option to utilize cash that you have paid into the policy with many plans. Use this option with caution, however, as you’ll need to be prepared to either not receive as much in benefits or you’ll need to pay the amount borrowed back into the plan. Some ways you can utilize your plan’s cash value are:
- Surrendering the policy, or canceling it, can be an option if you don’t need or want the plan anymore. This option will allow you to receive any of the cash value paid into the plan in one lump sum. However, you will no longer be applicable for any death benefits and sometimes you have to pay a fee to do this.
- Withdraw a portion of the cash value available on your plan. It is recommended that you do not do this, however, unless you have a plan to pay the withdrawn amount back in. These funds do have the added benefit of usually being tax exempt.
- You can sometimes apply for a loan based on the funds available in your life insurance policy. While this can help you with funding in areas needed like home purchases or college, you can also find your life insurance policy being depleted as repayment portions are taken out of your available cash benefits.
- Once you have built up enough cash value in your plan, you can ask your insurer to begin deducting payments from your cash value instead of paying a monthly premium. While this can help you save money now in premium payments, this will deduct from the cash value amount you have built up in your plan.
- Add your plans’ cash value to your retirement portfolio so that they can continue to grow. Financial advisors don’t recommend doing this until you’ve paid into your plan for 10-15 years at least.
Be Cautious
The cash value amount of your life insurance plan can seem like an untapped financial resource, but you should utilize it with strict caution. By utilizing the living benefits or cash benefits now for things, you can possibly be lessening the benefits available to you or your loved ones upon someone passing. If you plan on using any cash values built up in your policy, be sure you have a plan to either repay the money back into the policy or that you have another plan in place.