The Living Benefits of Life Insurance

In a Nutshell: In this article we explore important aspects of a lesser-known life insurance benefit of certain types of policies — living benefits. Different than the well-known death benefits, living benefits can help provide financial security and tax advantages for you while alive, as well as provide for others upon your death.

Life insurance has lots of special terms, but two of the most important are easy to grasp, once they’re explained to you:

• Death Benefit
• Living Benefits

• The Death Benefit of a life insurance policy is the amount your loved ones (or others you designate) will receive from the insurance company upon your death. Some people think of life insurance only in terms of its death benefit, but there’s a flip side to some types of life insurance that’s fascinating…
• The Living Benefits of life insurance allow the policy owner to access cash while still living. And living benefits are the subject of this article.

Yes, life insurance can offer the advantages of both death benefits and living benefits. Living benefits are offered before you die, and death benefits are offered … well, you get the picture.

The living benefits of life insurance that we’re talking about here are not the same as a Living Benefits Rider. This rider is an option you can add to some life insurance contracts that enables the policy owner to receive an advanced payment of the death benefit in the event of a terminal or catastrophic illness. It’s also known as an Accelerated Benefits Rider.

Living Benefits Available on Many Permanent Life Insurance Policies

Many permanent life insurance policies offer the advantages of exciting living benefits. In some cases, these benefits do not subtract from the death benefit, as accelerated benefits do. They’re in addition to whatever death benefit is paid upon your passing.

Permanent life insurance policies can do this because they build equity, called “cash value,” that accumulates over time. This accumulation of cash value, along with tax advantages available with a permanent life insurance policy, allows you to enjoy many “living benefits,” including guaranteed, tax-deferred growth, tax-free withdrawals, supplemental retirement income, college savings, legacy opportunities, and long-term care. Read on to learn what the living benefits of life insurance are:

1. Guaranteed, tax-deferred growth. With a permanent life insurance policy of the whole life variety, your cash value is guaranteed to grow by a pre-set and guaranteed amount every year, and to never decline in value. It contributes to your financial security with stable yet consistent growth that supports your financial goals.
2. Collateral for policy loans. The cash value you accumulate is an asset on your balance sheet. You may borrow against the equity in your life insurance policy, using the cash value and death benefit as collateral, at any time and for any reason. Some examples of reasons Bank On Yourself policy owners have borrowed money (Note: you’re not required to explain why you want the loan, but owners like to brag to us!) include:
   • Purchase a home
   • Invest in a business or commercial property
   • Handle a financial emergency
   • Provide a steady stream of supplemental income in retirement
   • Pay for college without going broke
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   Insider’s Tip #1: If you have the right kind of whole life insurance policy, the money you borrow will continue to grow, just as though you never touched a dime of it! (The technical name for the right kind of policy is a non-direct recognition policy.)

   Download a free Report here that reveals how a little-known type of high early cash value, low-commission dividend-paying whole life policy lets you fire your banker, bypass Wall Street and take control of your own financial future. You’ll also get a free chapter from Pamela Yellen’s New York Times best-selling book on this subject.

   Insider’s Tip #1: If you have the right kind of whole life insurance policy, the money you borrow will continue to grow, just as though you never touched a dime of it! (The technical name for the right kind of policy is a non-direct recognition policy.)

   Download a free Report here that reveals how a little-known type of high early cash value, low commission dividend-paying whole life policy lets you fire your banker, bypass Wall Street and take control of your own financial future. You’ll also get a free chapter from Pamela Yellen’s New York Times best-selling book on this subject.

   Insider’s Tip #2: Keep in mind that if you die with an outstanding loan, a portion of the death benefit will be used to pay off the loan balance, and your beneficiaries receive everything else.
   Insider’s Tip #2: Keep in mind that if you die with an outstanding loan, a portion of the death benefit will be used to pay off the loan balance, and your beneficiaries receive everything else.
3. Dividend payments. Though they are not guaranteed, the insurance companies recommended by Bank On Yourself Professionals have paid dividends every single year for well over a century. You can choose to take the dividends in cash, use them to pay back a policy loan, or use them to purchase additional insurance (known as paid-up additions) that increases the death benefit and cash value of your policy.

   Request a free, no-obligation Analysis here and find out how much money you could have—guaranteed—on the day you plan to retire … or at any point along the way:

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   Insider’s Tip #3: Equity you take out of your policy may be taxed if it exceeds the amount you’ve paid in premium during the life of the policy. A good financial representative will show you how to avoid that.
   Insider’s Tip #3: Equity you take out of your policy may be taxed if it exceeds the amount you’ve paid in premium during the life of the policy. A good financial representative will show you how to avoid that.
4. Flexible funds for retirement. You can use your permanent life insurance cash value to supplement your retirement income without the requirements, penalties or limitations that apply to 401(k) and IRA retirement accounts. You have several choices, including receiving your dividends in cash, surrendering paid-up additions that you purchased along the way, or taking policy loans.
   Insider’s Tip #4: If you no longer need the death benefit and would like guaranteed income from your life insurance contract, you also may terminate the policy and have the cash surrender values paid out as a lifetime annuity.
   Insider’s Tip #4: If you no longer need the death benefit and would like guaranteed income from your life insurance contract, you also may terminate the policy and have the cash surrender values paid out as a lifetime annuity.
5. College savings. Life insurance cash value is one of the few assets not considered in federal college financial aid calculations. Families with college-age children who have permanent life insurance policies not only can use the policy’s cash value (via policy loans) to pay college tuition and housing expenses, but also might benefit from greater financial aid opportunities, compared with families with a similarly-sized 529 Plan.
6. Legacy opportunities. There are many opportunities to leave a legacy through life insurance in addition to providing for your spouse, family and other heirs. If you have a favorite charity or cause, you can fund a legacy gift with a life insurance policy, naming the organization as beneficiary.
   Insider’s Tip #5: If you own a business, you may consider using a policy as part of a buy-sell agreement to ensure continuity of a small business or liquidate your ownership stake upon your death.
   Insider’s Tip #5: If you own a business, you may consider using a policy as part of a buy-sell agreement to ensure continuity of a small business or liquidate your ownership stake upon your death.
7. Long-term care. Some states allow insurance companies to offer hybrid policies that include a long term care benefit, along with the regular death benefit.
8. Tax benefits. Permanent life insurance offers many tax advantages, including tax-deferred growth on cash value accumulation, tax-free withdrawals, and income tax-free distribution of death benefits, under current tax law.

The living benefits of life insurance are not to be sneezed at. While not everyone will have a need for an accelerated benefit rider, fortunately, those insured individuals who suffer terminal, chronic, or critical illnesses will bless the day they purchased life insurance with those riders.

And when you take a look at the other living benefits—offered to owners of permanent life insurance policies—you’ll see the doors to having a savvy financial strategy really begin to open wide.

Does Term Life Insurance Have Living Benefits?

Living benefits are most often associated with permanent (cash value) life insurance. But even term life insurance policies can be purchased with one or more accelerated benefits riders, which will pay you money while you’re still alive—under circumstances you, frankly, hope you never find yourself in. Hint: Those circumstances all have to do with illness:

1. You’re terminally ill. You can receive a portion of your death benefit in advance, for help with medical expenses, one final around-the-world fling, or whatever.
2. You’re chronically ill. Frequently you’re considered chronically ill if you can’t perform several of the six activities of daily living, such as getting out of bed, feeding yourself, bathing, and so forth. You can receive a portion of your death benefit in advance, in situations like this.
3. You’re critically ill. That could mean you’ve been diagnosed with a heart attack, stroke, cancer, end stage renal failure, major organ transplant, or some other pretty grim illness. Again, you can get some or all of your death benefit early—in time to be of some use to you.

The living benefits offered by term insurance policies have to do with illness. And they all have something else in common. Did you notice what it is?

These are accelerated benefit riders. They only affect when the insurance company pays the money. They don’t affect how much is paid.

That means, for example, that if you have a $100,000 death benefit, and you receive $75,000 prior to your death because you qualified under one of these riders, when you actually do pass away, the insurance company will pay only the remaining $25,000. They’ve already paid $75,000; they won’t pay that again.

Continue to the Table of Contents for the No-Nonsense Life Insurance Guide