The number one benefit of life insurance is the money your policy pays to your family if you pass away. But did you know that some policies build cash value over time? Or that some policies let you dip into that death benefit if you need help paying for care due to a disability or terminal illness? While the tax-free death benefit is still the biggest reason to buy coverage, there are plenty of living benefits you can use during your lifetime that may surprise you.
Learn the Basics
Let’s start with the most important benefit of any life insurance policy – the peace of mind provided by the policy’s payout if anything happens to you. That money may be used for income replacement, business continuation, or estate preservation. Here’s what you need to know to get started.
Living Benefits: What’s In It for You?
From riders to return of premium, life insurance policies have many options that can help you achieve a range of financial goals. For example, some policies build cash value over time. Others have options for policy riders that let you tap into the death benefit if you need help paying for medical care. Here’s a brief introduction to the many living benefits of life insurance.
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The Benefits of Life Insurance
The number one benefit of life insurance is for your loved ones. They get paid a lump sum of cash when you pass away. Depending on your financial situation, that cash could be their lifeline without your income to see them through the coming months and years. Or, if you’re already financially secure, that money could represent a final gift from you to them – the ability to pay for college, a wedding, a business, a life-changing trip, a side hustle, you name it. First and foremost, that death benefit is the first and most important reason to buy life insurance.
But financial protection for your family isn’t the only benefit.
No matter whether you have a term life insurance policy or a permanent life policy, there are other benefits you can access during your lifetime. Some of these are free, while others have an additional price tag. With policy add-ons called “riders,” you can up the ante on what your policy will do for you while you’re alive.
We’ll go over both types of life insurance benefits – the ones for you and the ones for your beneficiaries – below.Get a Free Quote
For Your Loved Ones: The Death Benefit
- Peace of mind. Wouldn’t it feel amazing to know that, if your family breadwinner passed away, you wouldn’t have to worry about how to put food on the table? That’s the true inspiration behind life insurance. No one who loves their family wants them to go through financial hardship. Whether you’re a breadwinner, a homemaker, or all of the above, you provide money, time, and love that are irreplaceable. But with life insurance, you can leave your loved ones the money they need to carry on for the next days, weeks, months, or even years, even if you’re not there. That money can pay rent, cover credit card debt, wipe out a student loan, and more.
- Income-tax free. This is one of the great life insurance tax benefits – in almost all cases, your beneficiaries won’t pay any income tax when they receive the death benefit. That’s because it’s not income; the death benefit is simply the fulfillment of a contract you signed with the insurance company when you bought your policy. The only exception (and this is rare) is if you overfunded your policy past federally allowable limits as part of a larger financial strategy, usually created with your financial advisor.
- Estate tax solution. If the value of your estate triggers the government’s federal estate tax, the life insurance death benefit can pay some or all of that tax. With a little estate planning, we can figure out if your estate will trigger that tax, how much that tax is likely to be, and how much of a death benefit you want to leave your heirs so they can pay that tax without dipping into their own pockets or having to sell some or all of your estate.
- Estate equalization. If you have assets that are hard to divide – like a small business or a beloved family home – you can use life insurance to provide an equal inheritance to the child (or children) who won’t inherit those hard-to-split assets.
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For You: The Living Benefits of Life Insurance
- Peace of mind. When you know your loved ones are provided for, you can rest easy. You’ve done the right thing and fulfilled your financial obligations. Even if something happened to you, you’ve given your spouse and kids the resources they need to keep living their lives. Aside from being the responsible thing to do, it’s also a touching way to provide one last gift they’ll remember forever.
- Cash value. If you buy a permanent life insurance policy (a type that covers you for your whole life), that policy will have a cash value component. The insurance company deposits a part of every payment you make into this account, where it grows and compounds with interest over time. Later, you can use this cash for anything: extra retirement income is one big reason to choose a cash value policy. Not only are your loved ones protected – you’re also growing a pot of money you can use later, for any reason, no exceptions. This is one of the great benefits of permanent life insurance!
- College planning. Have kids who are headed to college? That’s one possible use for your permanent policy’s cash value. That cash value account is also a place you can sock away extra money, above and beyond your policy’s minimum payments. Your policy’s cash value is not an asset considered on the FAFSA form. This means your student could qualify for federal student aid even with a healthy sum available in your cash value account.
- Access the death benefit if you’re diagnosed with a terminal illness. Your life insurance company will provide a free “rider” (policy add-on) that lets you dip into the death benefit if you’re diagnosed with a terminal illness. Almost all companies offer this for no extra cost. You’ll usually see this referred to as the life insurance accelerated death benefit. If you need treatment, medication, or in-home care, you can start using that death benefit once you’ve received the terminal diagnosis. Keep in mind this diminishes the total amount available for your loved ones after you pass away. But it’s a great comfort to know that if you need it, it’s there for you.
- Access the death benefit if you need long term care. Most insurance companies offer a long-term care rider for an extra fee. This means that if you ever need long-term care, you can pull from the death benefit. There are several forms of long-term care: nursing home, adult day care, and an in-home health aide are all types of care provided for adults who need help with the daily activities of life: washing, dressing, eating, moving about, etc. Whether you need help for a short time, during recovery from an injury or illness, or for a longer period due to your age, your policy’s death benefit can help pay for your care. This living benefit rider is a great way to make your policy do more for you financially – and can often replace the need for stand-alone long-term care coverage.
Insurance providers have really stepped up their game when it comes to offering living benefits. The past decade has seen a lot of improvement in ways you can use your policy before you pass away. The benefits of having life insurance now include you, not just your loved ones.
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The advantages of life insurance coverage are easy to see! To learn more about the benefits of life insurance for your unique situation, give me a call! Let’s find a policy that gives you and your loved ones peace of mind.Schedule a Call