If you have anyone who depends on you for financial support, you may have life insurance in place so that your dependent(s) don’t endure hardship when you are gone. But did you know that today, many life insurance policies include “living benefits,” meaning that you could access funds for a wide range of needs in the present? Knowing how to use your life insurance policy while you’re still alive can open up a whole new level of financial planning.
How Life Insurance Living Benefits Work
Living benefits (also often referred to as accelerated death benefits) allow you to access your own life insurance death benefit while you are still alive. You can find living benefits available on both term and permanent (cash value) life insurance plans.
In some cases, living benefits may be automatically included on a life insurance policy for no additional fee. Depending on what you want to use this money for, you may also be required to meet certain qualification criteria.
Some of the most common life insurance living benefits include:
- Long-term care payments
- Terminal, critical, and/or chronic illness payments
- Retirement income supplement
For instance, if you (or whoever is the insured on the policy) is diagnosed with a terminal illness – typically with a life expectancy of six months to two years – you may be allowed to use funds from the death benefit for your healthcare expenses. The same holds true if you have been diagnosed with a chronic or critical illness.
Many life insurance policies also include the ability to access funds for long-term care needs. Based on the particular policy, you must usually be unable to perform two of six basic daily living activities to qualify. With this and other health-related living benefit triggers, you may also have to abide by a waiting period before you are allowed to obtain the funds.
In some cases, you may also be able to use funds from your life insurance policy as a supplement to your retirement income. These are generally associated with permanent / cash-value life insurance.
Usually, funds may either be withdrawn or borrowed via a life insurance policy loan. Money that is withdrawn is typically taxable on the portion that is considered gain. But loans can be accessed tax-free – and if the full amount of the loan is not repaid before the insured passes away, the remaining balance can be paid off using the death benefit.
Other Cash Flow Generator Alternatives
If you do not have life insurance with living benefits – or you don’t qualify for a new policy, based on your current health condition – there are other ways that you could receive an income stream. One alternative is through an annuity.
Annuities can pay income for either a pre-set time period, such as ten or twenty years, or for the remainder of the recipient’s lifetime – regardless of how long that may be. These flexible financial vehicles offer a great way to receive reliable, ongoing cash flow that can be used for any need or want.
There are many different types of annuities available today, though, and they often have a plethora of “moving parts.” With that in mind, it is important that you first discuss your financial goals and needs with a retirement income specialist before you make a long-term commitment to purchasing an annuity.
At Annuity Gator, we specialize in educating consumers (and financial advisors) on how annuities work, and whether or not they may be a viable component to one’s overall portfolio. So, if you would like more details, feel free to contact us and set up a time to chat with an annuity expert.
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Life Insurance with Living Benefits. By Casey Bond, Ashlee Tilford. Forbes Advisor.