Discover the Different Living Benefits of Life Insurance
Discover the Different Living Benefits of Life Insurance
Written by: Michael Flanders
What Is Life Insurance?
Life insurance gives assurance against budgetary disappointment coming because of death. It is an insurance organization’s certification to pay a recipient a specific measure of cash when a protected bites the dust in return for fitting installment of premiums.
While most people know that life insurance is commonly used to offer benefits that they can pass onto their heirs. Life insurance companies have developed some substitute ideas with how insureds are utilizing their policies when they are alive in different ways.
This is known as the living benefits of the strategy. Life insurance arrangements are no longer utilized simply after the destruction of a man. Now the strategy benefits has been tweaked for different needs which is peopling to utilize their approaches for their different needs and objectives.
The living benefits also called the accelerated death benefits may be included in the life insurance policy as a rider during the purchase or afterwards. Such advantages will enable terminally ill people in accessing a part of the proceeds of their insurance death benefit before their demise.
Following the increasing health care expenditure, the majority of the people is faced with terrible financial hardship during their difficult times. As a person has to face the difficulty both emotionally and physically, the financial assistance which funds from the living benefits of the policy can offer will serve as a welcome relief. Such funds, along with relieving the stress on a person will also relieve the stress of the loved ones.
A policy holder will be capable of accessing their living benefits for the following,
• Suffering from a terminal disease and their demise may take place shortly
• Will be confined to a hospital or nursing home permanently
• Not capable of performing specific activities of day to day living via their own
• Have been diagnosed with a specific catastrophic disease or needs special medical care like an organ transplant
• Needs constant life support services
The benefits from a life insurance policy typically can be accessed through a policy loan or a policy surrender. Living benefits in essence serve as a form of lien against life insurance policies. It will cut down the death benefits which are actually payable to beneficiaries as well as cut down the sum which is accessible for loans along with the policy’s cash value. In fact the lien will be equivalent to the payment amount of the living benefits which the policyholder will get along with accrued interest. With life insurance policies continuing to evolve, the advantages which are provided through such plans is likely to persist to offer for the changing and unique requirements of the policy holders and on a broader scale.
Other ways in which life insurance cover can help…
Life insurance coverage may provide some features and options that will help in expanding the ways it can be utilized, thereby making it a more powerful and flexible financial resource.
Living Benefits Available on Term Life Insurance Policies
Living benefits are most often associated with permanent (cash value) life insurance. But even term life insurance policies can be purchased with one or more riders, which will pay you money while you’re still alive.
- You’re terminally ill. You can receive a portion of your death benefit in advance, for help with medical expenses, one final around-the-world fling, or whatever.
- 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 can receive a portion of your death benefit in advance, in situations like this.
- 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. Again, you can get some or all of your death benefit early—in time to be of some use to you.
The living benefits offered by term insurance policies have to do with illness. And they all have something else in common.
These are accelerated benefit riders. They only affect when the insurance company pays the money. They don’t affect how much is paid.
That means, for example, that if you have a $100,000 death benefit, and you receive $75,000 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 $25,000. They’ve already paid $75,000; they won’t pay that again.
Living Benefits Available on Permanent Life Insurance Policies
The same types of accelerated benefit living benefits available for most term life insurance policies are also available for most permanent life insurance policies.
Most permanent life insurance policies offer living benefits that go far beyond what’s available with term insurance. In many cases, these benefits do not subtract from the death benefit, as accelerated benefits do. They’re in addition to whatever death benefit is paid upon your passing.
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,” that include:
- 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. (Note: you’re not required to explain why you want the loan.) include:
- Purchase a home
- invest in a buisness or commercial property
- Handle a financial emergency
- Provide a steady stream of supplemental income in retirement
More Tips and ideas for using Living Benefits
- 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 benefits 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, and income tax-free distribution of death benefits.
It’s important to note there are some limitations to be aware of with these types of benefits.
- State Availability – Accelerated death benefits are not available in every state. Many standard term life policies that offer accelerated death benefits are also limited by state restrictions. It’s best to confirm availability in your state with your agent.
- Benefit Limits – Many benefits are limited in terms of amount and frequency. There may be other limitations based upon individual circumstances, such as the life expectancy.
- Fees – Accelerated death benefits are essentially loans against the policy’s face amount. The company will use a benefit interest rate used to determine the present value of future benefits. This rate, along with administrative fees which vary by company, will be factored into the amount of the benefit allowed.
There are many factors to take into consideration when evaluating a request for accelerated death benefits. It’s a good idea for you to get a solid understanding of these benefits before you purchase a policy.