Life insurance is a way to provide your family and loved ones with financial security in the event of your passing, and a way to pay for too often inflated funeral costs. It can seem to be an added expense from which you never directly benefit; however, there are ways that you, the policyholder, can benefit while you are still alive.
Tapping into your life insurance policy can be a way to help you meet financial goals. Those funds could help financially support the next stages of your life, such as a child’s college tuition or a house renovation.
It is important to note that this ability depends on which company holds your policy and what the policy stipulations are. Checking with your insurance agent will provide clarity into which of these benefits may be available to you now.
1. Take Out a Loan
For some holders, it is possible to take a loan from the cash value of the policy. This cash value is considered to be the collateral for the loan. Life insurance loans are technically money you are borrowing from yourself. This means they have relatively low-interest rates and usually have flexible repayment terms. Most importantly, they don’t require a credit check, and because the money is not considered income, it is not taxable.
It is important to note that the interest accrued could possibly chip away from the death benefit if not repaid in a timely manner. However, you could use this loan for the purposes of your choosing.
2. Withdraw From the Policy
Similarly to taking out a loan, it is also possible to withdraw from the policy, but this will definitely affect the premium and death benefit. Reducing the death benefit in this way means that there is less money to cover funeral expenses and associated costs to your family upon your death.
When withdrawing, you may be expected to pay taxes on the withdrawn amount. The IRS will especially consider this as income if you withdraw more than the value your policy allows.
3. Surrender the Policy
When surrendering a life insurance policy, one withdraws the cash value and cancels future coverage. What you receive is the money you have already applied towards the policy and associated interest, but this option will require paying surrender fees and federal income taxes. Depending on your specific situation, it may not be fiscally wise to surrender your life insurance policy. Despite the drawbacks, this can sometimes be preferable to letting a policy lapse.
Because you are essentially selling your policy, there are options to either be paid in a lump sum or in periodic payments. Selling means you will no longer have this life insurance coverage, and your beneficiaries will not receive a payout upon your death.
In the event of choosing to sell your policy, it is possible to do this on a secondary market. You may receive a payout that is more than the cash value, but it will also likely be less than the full value of the policy. Working with an experienced broker can better help you to achieve an outcome that aligns with your goals.
4. Living Benefit Riders
Some types of life insurance come with policy additions called “riders.” Coverage plans with added benefit riders tend to be more expensive. One of these riders is a living rider which can be accessed when the policyholder meets certain criteria, depending on the situation. Some common examples of living benefit riders are accelerated death benefit riders, disability waivers, or long-term care riders.
Accelerated death benefits allow a policyholder to begin using their life insurance benefits while they are still alive, but have a minimum amount of time to live. The amount of time will usually be stipulated by the rider. In these cases, the benefits would be used towards medical expenses, paying debts or even creating memorable times for you and your family to enjoy.
When it comes to disability, there are certain premium waivers, but also disability income insurance riders. In the case of waivers, if the policyholder becomes disabled in the ways outlined in the rider, the premium is waived to help prevent the lapse of the insurance policy.
The latter, disability income insurance rider, acts as long-term disability insurance during a period in which the policyholder is unable to work. This is useful as this situation normally requires a new policy, but the premium covers the cost in this case.
Long-term care riders are for covering expenses associated with placement in a nursing home or acquiring an in-home nurse if necessary. In addition, a similar rider known as critical illness riders can help cover medical costs for predetermined illnesses that can limit your life expectancy.
Working towards plans surrounding the end of your life can be a somber task, but making sure you can take care of the ones you love upon your passing is something you can do to have control over the situation. It is important to work with an insurer you trust; the insurance providers at Pro Insurance Group will work with you to establish a policy that meets your specific needs .
A life insurance policy is important not only for you but more so for the ones you love. To ensure that you and your family are well provided for when the time comes, contact Pro Insurance Group for a life insurance quote by calling at 833.619.0799.