Can I use my life insurance while I’m alive?

Yes, you can use certain aspects of your life insurance policy while you’re alive, depending on the type of policy you have. Life insurance is primarily designed to provide a death benefit to your beneficiaries after you pass away, but many policies offer additional features that can be accessed during your lifetime. Let’s explore the ways you can use your life insurance while you’re still alive.

1. Accessing Cash Value in Permanent Life Insurance

Permanent life insurance policies, such as whole life and universal life insurance, include a cash value component that grows over time. Here’s how you can use the cash value while you’re alive:

• Withdrawals: You can make partial withdrawals from the cash value of your policy. The amount you withdraw is generally tax-free up to the amount of the premiums you’ve paid. However, withdrawing from your cash value will reduce the death benefit that is paid to your beneficiaries.
• Policy Loans: You can borrow against the cash value of your policy, using it as collateral. These loans typically have a lower interest rate than other types of loans, and you are not required to repay them. However, any unpaid loan balance plus interest will be deducted from the death benefit if you pass away.
• Surrendering the Policy: If you no longer need the coverage, you can surrender your policy and receive the cash surrender value. Keep in mind that surrendering the policy means you forfeit the death benefit, and there may be surrender charges.

2. Accelerated Death Benefits

Many life insurance policies include an accelerated death benefit (ADB) rider, which allows you to access a portion of the death benefit if you are diagnosed with a terminal illness or a specified chronic illness. Here’s how it works:

• Terminal Illness: If you are diagnosed with a terminal illness and have a life expectancy of 12 months or less (varies by policy), you can access a portion of the death benefit to cover medical expenses, hospice care, or other financial needs.
• Chronic or Critical Illness: Some policies offer accelerated benefits for chronic or critical illnesses that require long-term care or result in significant medical expenses.

Using accelerated death benefits reduces the death benefit that will be paid to your beneficiaries after you pass away.

3. Living Benefits Riders

In addition to accelerated death benefits, some life insurance policies come with living benefits riders that provide financial support in certain situations:

• Long-Term Care Rider: This rider allows you to use a portion of the death benefit to cover long-term care expenses if you become unable to perform activities of daily living, such as bathing or dressing.
• Critical Illness Rider: This rider provides a lump-sum payment if you are diagnosed with a critical illness, such as cancer, heart attack, or stroke. The funds can be used to cover medical treatments, rehabilitation, or other expenses.

4. Using Life Insurance to Supplement Retirement Income

Some individuals use the cash value from their permanent life insurance policy as a source of supplemental retirement income. Here’s how it can work:

• Policy Loans or Withdrawals: You can take loans or withdrawals from the cash value to supplement your income during retirement. This can provide additional financial flexibility, especially if you have maxed out other retirement accounts.
• Tax Advantages: Withdrawals up to the amount of premiums paid are typically tax-free, and policy loans are also generally tax-free as long as the policy remains in force.

5. Funding Major Expenses

The cash value in a permanent life insurance policy can be used to fund major expenses, such as:

• Paying for a Child’s Education: You can use the cash value to help pay for college tuition or other educational expenses.
• Purchasing a Home: Some people use their policy’s cash value to supplement the down payment on a home or cover other significant financial commitments.
  
  

Term Life Insurance: No Cash Value

Term life insurance does not accumulate cash value, so it doesn’t provide the same opportunities for using the policy while you’re alive. However, if your term policy includes riders such as an accelerated death benefit, you may still be able to access a portion of the death benefit if you face a terminal illness.

Yes, you can use your life insurance while you’re alive, especially if you have a permanent life insurance policy with a cash value component. Whether through withdrawals, policy loans, or living benefits riders, these features can provide financial flexibility and support during your lifetime. It’s essential to understand the terms of your policy and how accessing these benefits may affect your death benefit and overall financial strategy.

At Toby Hansen Insurance Agency, we can help you understand your life insurance options and how you can utilize your policy to meet your financial needs. Contact us today to learn more about how life insurance can benefit you both now and in the future.