According to LIMRA,
over halfof Americans have some form of life insurance as of 2017. However, many don’t truly understand what they are buying. For instance, most people think of life insurance as something you take out to benefit your loved ones, rather than yourself.
After all, the main benefit of a life insurance policy is protection for your dependents in the event of your death, so it is easy to think that a life insurance policy can’t benefit you now. However, life insurance can actually be an incredibly handy financial tool for you while you are still living, so it’s useful to get informed on the various ways you can use it.
Funding Retirement
Many people have less need for life insurance as they get closer to retirement age. As children grow into financially stable adults, it is entirely possible to find yourself with a life insurance policy whose beneficiaries wouldn’t actually rely on in case of your death. In these cases, your life insurance can be a useful asset.
It is
possible to sella life insurance policy to get a cash payout, which is a great way to supplement retirement income or pay for medical expenses. This is called a life settlement, and it is usually available to people over 65 with a policy worth at least $50,000.
Long-Term Care
It is worth noting that although you can use your life insurance to fund long-term care, it may be a good idea to purchase
long-term care insuranceinstead. The premiums for this kind of insurance are usually lower when buying in your late middle age, so the sooner you start thinking about this the better.
Alternatively, some life insurance policies allow you to apply for long-term care benefits within the same policy. This usually comes in the form of a
living benefit rider, an add-on to your existing product that allows you to withdraw a certain amount of money in the event you need it.
Whole vs. Term Life Insurance
An important distinction to make when talking about living benefits is
whole versus termlife insurance. Simply put, term life insurance covers you for a certain period: it is the type of insurance you would get to protect your family from premature death; it is the cheaper and simpler option. Whole life insurance covers you forever, even if you die of natural causes — as such, it is understandably more expensive.
As explained by
Bank on Yourself, term life insurance living benefits usually only apply in the event of illness and they are also a withdrawal from your agreed death benefit. While they can be useful in case of a life emergency, they involve a type of compromise.
Living benefits for whole life insurance tend to be better, offering you money in addition to the death benefit. Your policy’s value will grow over time, you can use your policy as collateral for loans, and some even pay dividends. While this seems like an ideal solution, whole life insurance does come with its
pros and cons, so make sure you do your research and understand these fully before purchasing a policy.
Regardless of what type of life insurance you select, keep in mind that at some point, you’ll probably need to have a blood test. The
test will checkyour blood pressure, BMI, and cholesterol, as well as see if you’re using drugs, tobacco products, or alcohol. In other words, your insurer will take a good look at your overall health to see how much they will charge you for coverage, and the healthier you are, the less you’ll pay every month.
As with any financial decision, the choice of whether to explore these possibilities with your life insurance will depend on your particular circumstances. For example, you may not need to worry about living benefits if you have money set aside for long-term care or if you have good health insurance. Nonetheless, even though you may not need to leverage your life insurance in this way, it is always important and useful to be aware of all your options.
Author:Jim McKinley--
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