How can I get life insurance with living benefits?
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How can I get life insurance with living benefits?
Life insurance may offer a death benefit that will be paid to beneficiaries in the event of your death, but some policies offer living benefits as well. If a consumer purchases the right plan, they can actually use their life insurance as a savings vehicle that will also provide the family with the financial protection that they need if the end of days come. To fully understand how living life ben...
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Life insurance may offer a death benefit that will be paid to beneficiaries in the event of your death, but some policies offer living benefits as well. If a consumer purchases the right plan, they can actually use their life insurance as a savings vehicle that will also provide the family with the financial protection that they need if the end of days come. To fully understand how living life benefits work, you need to learn how permanent life insurance policies work.
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Buying life insurance and building a comprehensive life portfolio should not be done in haste. While it is important to have an adequate amount of coverage that will pay off debts and replace your income, you need to select the right plan or the right combination of plans that will serve their purpose. Some policies are strictly for income replacement and debt repayment, but others are designed to be tapped into while the insured is still living. Read this guide to life insurance with living benefits, and find out just what needs to be considered as you shop for policies with savings components and riders that can cover living expenses.
What is permanent life insurance?
Term insurance is extremely easy to understand. You simply select a death benefit, select the period of time you want your policy to last, and then pay your premiums to keep your coverage in tact. Permanent insurance, however, can be extremely complex and difficult to grasp. As you might expect, permanent insurance is designed to stay in force for life, but it is the way that this is made possible that complicates the product.
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How does permanent life insurance work?
The general purpose of permanent insurance is to provide the named insured with coverage for the remainder of their life, but the secondary purpose is to give the policyholder a vehicle where their money can grow on a tax-deferred basis. This is possible by applying a portion of the policy premiums to pure life insurance and depositing the rest of these premiums into a cash account that earns interest.
As the cash account grows, it will balance out the rising cost for pure life insurance so that your premiums can stay fixed as you age.
Premiums are higher than term life, but you never have to worry about having a rate increase when your policy is up to expire and you are forced to requalify at a significantly older age. If the cash account earns more than expected, this money can be accessed without compromising the policy or affecting the death benefit.
What types of permanent life insurance exist?
Just like there are multiple types of term insurance, there are multiple types of permanent cash value plans that have their own unique structure. You should be able to identify the pros and cons of each plan when you are looking for one with living benefits. Here is a breakdown of how each type of policy works:
- Whole Life Insurance
Whole life insurance was the first permanent plan introduced to the marketplace and is still the most common one sold today. A whole life policy has a life insurance component and a savings component. What makes it unique is that it offers you predictability with fixed premium payments throughout the life of the plan. Since the level premiums are guaranteed, maintaining the coverage is not as complicated as it can be for other plans.
You will also enjoy a guaranteed return on your cash values, which will accumulate and sit in the cash account. Cash values and dividends can be accessed in the form of a loan or a withdrawal. You can either let it sit and enhance your death benefit, or use it while you are living.
- Universal Life Insurance
Universal life insurance is another cash value policy that has been attracting a lot of attention in the recent years. This type of plan allows the policyholder to adjust their payments over the life of the plan to either keep premiums low or to capitalize on tax-deferred growth when they can affect to load the plan. There are payment minimums and maximums, but your money will still earn guaranteed returns like a whole life plan.
This type of plan can be extremely complex when you do not fund it properly and you must pay catch-up premiums, but as long as you pay attention to policy performance and you are paying a sufficient amount, you can keep your death benefit and still accumulate cash values that can be tapped into. Be sure that you are willing to stay on top of your policy each year if you want to select this modern form of permanent insurance.
- Variable Life and Universal Life
The major difference between whole life, universal life and their variable counterparts is how the money is invested. Instead of being invested in moderate investment avenues where there is a guaranteed minimum return rate, your money in a variable policy will go into stocks and bonds where there is more risk. In exchange for taking the risk by diversifying your investments, you will watch your money grow more quickly. Unfortunately, since you enjoy greater growth, most variable policies do not have a guarantee. This means that the cash values and the benefit on the policy can go down if an investment does not perform, lowering or limiting the living benefit feature.
How can permanent life be used when you are living?
Now that you can distinguish one permanent policy from another, the next step is learning how this life insurance policy can be used as a financial tool while you are living. Before you automatically assume that tapping into your life insurance is the right idea, you need to know the consequences and the tax implications. Here are the various ways you can turn your life protection into a vehicle that can help you improve your quality of life:
1. Life Policy Loans
One of the most popular features that is marketed when agents are selling permanent life is that the values can be borrowed against in the form of a policy loan. Because the premiums are paid for with after-tax money, the values that are sitting in the cash account will grow tax-deferred.
If you withdraw the values, you will be taxed, but if you take a loan, the loan is not considered taxable income.
When there is an outstanding loan at the time a claim is filed, the amount is deducted from the death benefit. As long as the policy does not lapse due to the fact that money was borrowed, you will not face expensive tax consequences.
2. Cashing Out Dividends
If investments perform well, the company will offer their policyholders a dividend. This dividend can either sit in the policy to accumulate interest, or you have the right to request it to be sent to you. While they are not guaranteed, dividends can provide you with some extra spending money each year.
3. Disability Waiver of Premium Protection
Many companies offer clients the opportunity to purchase special riders that will provide the named insured and their family with more protection. Once rider is the disability rider, which will waive your policy premiums while keeping your coverage in tact if there is a partial or permanent disability. You should review the terms of the contract, but having this rider can help you manage your living expenses when you have a limited income coming in.
Are there any living benefits for term insurance?
Term insurance does not offer living benefits in the form of policy loans, but you may be able to take advantage of other types of living benefits if you add special riders to your insurance. Here is a breakdown of some popular riders that offer protection for the insured.
- Disability Income Rider
Provides you with income replacement when you suffer a covered disability.
- Critical Illness Rider
Will pay you a lump sum from your death benefit if you are diagnosed with a terminal illness so that you can live comfortably as you are being treated.
- Accelerated Death Benefit
The ability to collect a portion of your benefit while you are living to pay for medical bills and living expenses.
- Return of Premium
You will pay a higher premium for coverage but will receive all of your money back if you live to the expiration date of the term.
If you are ready to find a life insurance policy that offers you living benefits while you still get peace of mind that your family has protection, it is time to shop. You can easily comparison shop by using a rate comparison quoting tool from home. This online tool will show you premiums for various types of coverage and various limits. Assess the pros and the cons and select the policy that makes sense. Start comparing life insurance rates now by entering your zip code in our FREE tool below!
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How can I get life insurance with living benefits?
Life insurance may offer a death benefit that will be paid to beneficiaries in the event of your death, but some policies offer living benefits as well. If a consumer purchases the right plan, they can actually use their life insurance as a savings vehicle that will also provide the family with the financial protection that they need if the end of days come. To fully understand how living life ben...