Life insurance provides financial protection to your loved ones in case of an unfortunate event. Life insurance is often thought of as leaving the benefits of life insurance to your beneficiaries after you die, but there are many ways you can use your life insurance while you are alive. It can be used to pay off debt, make mortgage payments, or just help with larger expenses.
Life insurance comes in many types. Depending on your personal financial situation and long-term goals, you may benefit from a term, whole, universal or variable policy. But not every policy allows you early access. If you want to incorporate this capability into your plan, you need to do your homework first.
Your insurance policy may allow you to receive death benefits sooner depending on its terms and conditions. Some people may need to do this because of unforeseen circumstances such as a chronic illness. That’s why you may want to keep your life insurance coverage options open. Let us know what are the benefits of term insurance and permanent insurance while you are alive.
Term Life Insurance Benefits : While Alive
In today’s time many people prefer term insurance policies as it is generally more affordable than permanent ones. These policies are valid only for a specific period. This type of policy has no cash value, but requires you to make regular payments to keep the policy active. You cannot access the funds while the policy is in force.
If you buy a simple term insurance policy, you get nothing after the policy term ends, but if you buy three essential riders with this policy, you can enjoy the benefits of term insurance even when you are alive.
Critical Illness Rider Benefits
If you add the option of Critical Illness Rider with your term insurance policy and you are diagnosed with a terminal illness during the policy term, then the insurance company provides you the benefit of this. This money can help you cover medical expenses.
Whenever you add a critical illness rider to your policy, it has a separate cover and you have to pay a separate premium for it. The most important thing is that you get this benefit while you are alive but for this there are some conditions of the insurer. Whenever you choose such a policy, do check it which diseases are included in it.
Return Of Premium(ROP) Benefits
As we know that term insurance is the purest form of insurance in which the claim is paid only in case of death of the life assured during the policy term. However, if nothing happens to the life assured and the policy expires, you do not get back your premium.
But then people could not accept the fact that if nothing happens then nothing is given back and they thought that buying a term plan is like pouring money down the drain. So to overcome the mindset of such a person, insurance companies came up with “TROP (Term Insurance with Return of Premium)” in which if nothing happens to the insured, he/she gets his/her entire money back without any interest . However, with this type of rider, the premium for your policy is about 60% to 70% higher than the simple policy.
Waiver Of Premium(WOP) Benefits
Waiver of premium is an optional life insurance rider in term insurance. When you buy a waiver of premium rider, the insurance provider will be exempt from paying future premiums during the remaining policy term in case you become totally or permanently disabled due to an accident or other reasons.
The waiver of premium benefit proves beneficial when you are unable to pay premiums due to a disability and you do not have sufficient financial income due to loss of job.
Waiver of premium cover comes at an additional cost. However, it is definitely worth the investment made in the long run. When you are the sole earning member of your family, you must make necessary financial arrangements keeping in view various scenarios to secure the future of your family.
Permanent Life Insurance Benefits: While Alive
A permanent life insurance policy offers you financial protection as well as cash value. All whole life and universal life policies typically build up cash value over time with a portion of insurance premiums and interest paid on the cash account. This accessible cash is considered a survival benefit, and the policyholder can receive this cash in various ways:
Cash Value Withdrawal
Unlike term life insurance, whole life insurance policies offer an investment component. The income generated from this investment component of your policy is called the cash value of your policy. This income is tax free to the extent of the premium paid by you.
The cash value of a whole life insurance policy includes the premiums paid and interest provided by the company on the premiums paid, as well as your share of the company’s profits in the form of dividends and bonuses on participating policies.
Also Read – What Is Life Insurance | How To Choose Best Life Insurance
If a policyholder decides to cancel the permanent life insurance policy, the company will refund the cash account value less any surrender charges. Surrender value is the amount you receive from the insurance company when you terminate a cash value life insurance policy before maturity. The policy ceases to exist once you surrender it.
Term life policies have no cash value, but whole life insurance policies can build up cash value over time. Policy loans are the most popular way to access the cash value in a life insurance policy and can be taken out for any number of reasons.
You can get a loan of up to 80% of the cash value of some policies. However, it is a loan, and you pay interest on the loan. But, you are basically giving the money back to yourself, because it goes back into the policy. However, if you do not pay back the loan, your death benefit may be reduced by the amount of the loan plus any interest owed on the loan.
Long Term Care Benefits/Maturity Benefits
Whenever you take a whole life insurance policy, the policyholder gets a lump sum amount at the end of the policy term. This is known as maturity benefit. This amount is equal to the sum of all the premiums paid during the tenure of the policy along with the additional benefits provided by the insurer. Generally, these benefits are added at regular intervals and the total amount at the end of the policy term is a substantial amount
Frequently Asks Questions(FAQ’s)
Q1. What Kinds of Life Insurance Can You Use While You Are Alive?
A permanent life insurance policy will allow you access to the cash portion of your account while you are alive. So, if you are planning to use your life insurance as a backup cash resource, you should opt for a permanent life insurance policy.
Q2. How can you use a life insurance policy while you are alive?
It depends on the type of life insurance you have. For example, if you have a permanent policy, you can access the policy loan and policy surrender or long-term care benefits.
Q3. What kind of life insurance policy can you cash out?
If you have a whole life insurance policy, you can withdraw the cash value. In these plans, a part of your premium is used for investment.
The Bottom Line
It is a myth that many people have that you cannot access your life insurance while you are alive. Not only can you potentially use it, but it can also be a better option than other traditional cash options.
Check out these benefits, and look at the policies that provide them. If you already have life insurance, see if your insurer can cover these terms in your policy. More importantly, consider carefully before using these features.
Also Read – Is It Good To Have A Term Insurance Plan In India?
Also Read – Why you should buy life insurance in 2023
Also Read – 3 Big Downsides of Waiting to Buy Life Insurance Policy