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Everyone is aware that life insurance serves as financial security in the event of an early death, but did you realize it may also be used while a person is still alive?
Life insurance’s full potential is achieved only by knowing how to use it while living. Therefore, preparing your financial stability by utilizing this method is a wise choice. This blog post will discuss the advantages of “using life insurance while alive” and how to make it work for you.
Can life insurance be used before death?
Some life insurance policies let you use the policy’s living benefits to access a portion of your death payment. If you have been told that you have a terminal illness, need long-term care, or meet other criteria, you usually have this option.
Imagine yourself in a fictitious situation where you experience a severe accident and require long-term care. You can obtain money to manage your care needs through the living benefits of your life insurance without using any savings.
Is it possible to cash out life insurance while you’re still alive?
Yes, however, it will depend on your life insurance type. For example, whole or universal life insurance policies allow you to cash out or surrender the policy and receive the accumulated cash value. Remember that cashing out your insurance coverage implies giving up the death benefit to your beneficiaries.
If your children are financially secure and you are retiring, you might cash in your life insurance policy and use the proceeds to improve your standard of living in retirement.
Are life insurance policies supposed to be used while you are still alive?
Let’s start by clearing the most widespread misconception that life insurance isn’t just for benefits after death. Several life insurance policies include what are known as “living benefits,” which allow you to obtain your death benefit while you are still alive under specific circumstances.
For instance, you may use these benefits to pay for your medical bills if you suffer from a chronic, severe, or terminal illness. In some circumstances, you may also use them however you see fit. Yes, you can use the money when you’re in the most need of it.
Using life insurance while alive
The living benefits of your life insurance can be accessed in some ways. Let’s go over these in more depth:
Withdrawals of cash value
The cash value of some types of life insurance, such as whole life and universal life, accumulates over time and can be accessed for borrowing or withdrawal. You can use this money any way you see fit, whether to improve your home, pay for your child’s school, take a well-earned vacation, or even top up your Social Security payments.
Advanced death benefits
An Accelerated Death Benefit (ADB) is a common feature of life insurance policies. If you’re told you have a terminal disease or need long-term care, this provision enables you to get a portion of your death benefit early.
Imagine receiving a serious sickness diagnosis. Your Accelerated Death Benefit can pay for these costs, allowing you to concentrate on your health and rehabilitation rather than stressing about medical bills.
Type of Life Insurance Plan Where You Can Borrow While Alive
Different life insurance policies provide various lifestyle advantages. Permanent life insurance plans like Whole Life and Universal Life can be used as loan collateral. In addition to your death benefit, these plans build up a cash value over time that you can borrow against.
Take your 20-year-old entire life insurance policy as an illustration. Your policy would have accrued a considerable monetary value throughout this time. You have complete freedom to borrow against this sum and use it for whatever you see fit.
Conclusion
While life insurance does provide a death benefit upon your death, there are several circumstances in which you may be able to use your policy while still living. You can sell your policy, get a living benefit rider, access accumulated cash value, or take a loan against your insurance. However, because doing so can result in fees and tax obligations, selling your policy is typically only advised after you have explored all other choices.
