I Don’t Have to Die to Use Life Insurance?

Let’s face it, no one wants to talk about dying. And no one wants to pay for something that they will never use. Why do so many people by life insurance then? Getting life insurance is one of the most selfless things a person can do since the benefit will go to someone else. What if that weren’t the case? Can a person really use their life insurance policy while they are alive? The answer is yes.

Here are three ways to use a life insurance policy other than dying.

1)      Long Term Care:

Many permanent life insurance policies have the ability to add a long term care insurance rider to the policy. A long term care policy will provide benefits to help pay for nursing home or in home care in the event you can’t perform two activities of daily living (i.e. bathing, toileting, dressing, transferring or continence). The benefits will use a portion of the life insurance policy’s death benefit. In lieu of a long term care rider, most policies will have an accelerated death benefit rider which will provide much of the same benefit.

2)      Take a Loan:

Permanent insurance policies build up cash value within the life insurance policy. Insurance carriers allow policy holders to take a loan out of the policy based on the amount of cash value in the policy. Policy loans are taken on a tax-free basis from the policy.  

Let’s say banks are not loaning money or there is an investment property of interest, a policy holder can borrow money from themselves to take advantage of an opportunity. A parent can also take a loan out to pay for college expenses since cash value is does not count as an asset on the FAFSA from.

3)      Provide Income in Retirement:

If designed correctly, a life insurance policy can provide a stream of income in retirement. Policy holders can withdraw cash from the policy (which can be taxable) or take money out as a loan (as described above, not taxable). Money can be withdrawn as a lump sum or systematically over time.

Whole life insurance policies can be used as an alternative to bonds since they earn a similar rate of return. Whole life insurance policies are non-correlated assets which means their returns are not tied to the market.

Permanent life insurance policies can be a versatile financial tool if used correctly. Permanent life insurance can have multiple uses and should not be thought of only as a way to pass money on to heirs.