Introduction
Life insurance is often associated with providing financial protection for loved ones after the policyholder’s death. However, many people wonder if they can use their life insurance while still alive. In this article, we will explore the various ways in which life insurance can be utilized during a policyholder’s lifetime.
Living Benefits
Living benefits: Living benefits are a feature offered by some life insurance policies that allow policyholders to access a portion of their death benefit while they are still alive. These benefits are typically available in the form of accelerated death benefits or critical illness riders.
Accelerated death benefits: Accelerated death benefits allow policyholders who are diagnosed with a terminal illness to receive a portion of their death benefit early. This can help cover medical expenses, long-term care costs, or any other financial needs that arise due to the illness. The amount that can be accessed varies depending on the policy terms and conditions.
Critical illness riders: Critical illness riders provide coverage for specific serious illnesses such as cancer, heart attack, or stroke. If the policyholder is diagnosed with one of the covered illnesses, they can receive a lump sum payment from their life insurance policy. This can help alleviate the financial burden associated with medical treatments and other related expenses.
Policy Loans
Policy loans: Some life insurance policies, such as whole life or universal life insurance, allow policyholders to borrow against the cash value of their policy. The cash value is the accumulated savings component of the policy, which grows over time. Policyholders can take out loans using the cash value as collateral.
Interest and repayment: Policy loans typically accrue interest, which is charged by the insurance company. It’s important to note that if the loan is not repaid, the outstanding balance, including any accrued interest, will be deducted from the death benefit payable to the beneficiaries upon the policyholder’s death. Repayment terms and conditions may vary depending on the policy, so it’s crucial to understand the terms before taking out a loan.
Surrendering the Policy
Surrendering the policy: In certain situations, policyholders may choose to surrender their life insurance policy and receive the cash surrender value. The cash surrender value is the amount the insurance company will pay if the policy is voluntarily terminated before maturity.
Considerations: Surrendering a life insurance policy should not be taken lightly, as it means forfeiting the death benefit protection. Additionally, surrendering a policy may result in tax implications, especially if the cash surrender value exceeds the premiums paid into the policy. It’s advisable to consult with a financial advisor or insurance professional to fully understand the consequences before making such a decision.
Conclusion
While life insurance is primarily designed to provide financial protection for loved ones after the policyholder’s death, there are ways in which it can be utilized during the policyholder’s lifetime. Living benefits, policy loans, and surrendering the policy are some of the options available, each with its own considerations and implications. It’s important to thoroughly understand the terms and conditions of the policy and seek professional advice when considering utilizing life insurance while alive.
References
– Investopedia: www.investopedia.com
– Policygenius: www.policygenius.com
– The Balance: www.thebalance.com
