How to Use Your Life Insurance Benefits Without Dying
For most people, the purchase of life insurance is done with the intent of ensuring that loved ones and survivors will not face financial hardship if the insured passes away. The proceeds from a life insurance policy can be used for any number of reasons, such as eliminating a home mortgage balance, paying for a funeral and / or other final expenses, or funding higher education costs for a child or grandchild.
In all of these scenarios, though, it requires that the insured be deceased before the policy pays out any proceeds. However, with many of today’s life insurance policies, that doesn’t necessarily have to be the case.
Accessing Living Benefits from a Life Insurance Policy
Life insurance “living benefits” – which are also oftentimes referred to as accelerated death benefits – allow a policy holder to access some (or possibly even all) of the policy’s proceeds while he or she is still alive.
In order to access these benefits, the insured will typically need to qualify, based on his or her health condition and / or by becoming a resident in a skilled nursing home facility. However, it is not required that the money be spent on health care or nursing home expenses.'
These funds can be taken as one lump sum, or alternatively, the insured can receive the money from the policy in installments. While the money that is accessed is not usually subject to federal income taxation (as well as state income taxes in most states), the amount that is taken by the policyholder will be deducted from the death benefit that is eventually paid out to the beneficiary.
Not all life insurance policies automatically allow for accelerated death benefits. In some cases, this type of benefit can be added as a rider to the policy at the time of purchase, or even added at a later time.
Benefits of Having Life Insurance Living Benefits to Rely On
There are several reasons why life insurance living benefits may be attractive. For instance, with people living longer now, the need for long-term care has become a viable – and costly – concern. And, even though living benefits should not be considered as a replacement for long-term care insurance, they can provide a way to protect other financial resources from the high cost of care.
Likewise, even if you are covered by Medicare or another form of health insurance, there can still be a long list of copayments, coinsurance, and / or deductibles to be paid out-of-pocket. So, having a source of funding for these could help to pick up the tab.
Some Items to Consider Regarding Policies with Living Benefits
Although there are numerous advantages to owning a life insurance policy with living benefits, there are also some key considerations to keep in mind. First, you need to make sure that removing a certain amount of the policy’s death benefit will not create a future financial burden on the beneficiary.
Additionally, even though the amount of the death benefit will be reduced when living benefits are accessed, it is important to keep in mind that the policy’s premium must still be paid in order to keep the policy in force. Otherwise, it could end up lapsing.
Finding the Best Coverage for Your Specific Needs
There are many types of life insurance coverage options that are available today. While it is nice to have a wide range of options, it can also be somewhat confusing when you’re trying to find the coverage and the premium that best fits your particular needs and goals.
By working with an independent life insurance professional who has access to multiple carriers and policies, you can more easily narrow down the plan that is right for you.
If you have any additional questions about life insurance living benefits, or if you’d like a free, no obligation quote from your local Give Your Kid A Million agency partner, click the "get a quote" button on the right side of your screen.