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A life insurance payout is usually something you only think about when a loved one dies. However, just like any type of insurance, your life insurance policy has a lot of value right now! One of the major hidden benefits of a life insurance policy is its savings benefits (aka living benefits).
Depending on how you use your life insurance, it could end up being one of the most powerful pieces of your financial plan.
Living benefits allow you to utilize your life insurance policy while you’re still alive. Often called riders, living benefits work as “add-ons” to your term or permanent life insurance policy.
Riders provide extra financial protection. Here are a few popular riders:
Living benefits can also relate to the cash value savings component of some insurance policies. Cash value policies can help you fund your dream retirement, pay off debt or even cover college tuition.
There are two main types of life insurance: term and permanent. The difference between them is the length of time your policy covers and the cost of the monthly/annual premium.
Another major difference is the relative financial rewards you could gain.
Term life insurance usually covers 10-30 years and is known for being affordable and customizable. You can also “ladder” term policies for long-term savings and financial benefits.
Permanent life insurance (also called whole or universal) covers a lifetime and is generally more expensive than term life. However, permanent life insurance offers more robust living benefits and usually includes a cash value that you can access in addition to the policy death benefit (the lump sum paid when you pass away while your policy is in force).
This makes it a popular choice for small business owners, parents, double-income families without children and anyone who wants to diversify their financial plans.
Cash value life insurance policies (like whole life or universal life) combine permanent (lifetime) coverage with an investment account.
The cash value in your policy’s “savings” account grows interest over time. You can withdraw money from the cash value, access the cash value as a lump sum policy loan, or even use the money to pay premiums on the policy itself. Some people withdraw funds from the cash value to help cover down payments on a home, pay off debts, fund a college education or a dream vacation.
Different types of cash value policies include:
Depending on which type of cash value insurance you choose, your policy comes with rules around how you can access that cash value. For example, if you want to withdraw a portion of the cash value, you can do so tax-free with most variable and universal policies, but a whole life policy withdrawal would have risks such as a greater reduction of your death benefit.
By working with his agent, he discovered that one of his older policies included reimbursement for expenses related to a prolonged illness or disability. The $200,000+ payout he received provided relief for his entire family who had been subjected to the burden of medical debt. Read his story!
If you want to use your life insurance policy to gain cash value, a permanent policy such as an Indexed Universal life policy (IUL) or a variable universal policy is usually your best option.
Best life insurance for building cash savings:
Above all, life insurance exists to protect your partner, child, business or loved ones from paying off any of your debts when you pass away. The death benefit of your policy should be enough money to cover your outstanding debts (it’s important to cover future debts too) including mortgages and student loans.
Consider this before withdrawing funds from your policy too – you want to leave behind enough money to cover all debts.
Permanent life insurance offers lifelong coverage, flexible premium payment options and a cash value savings component – as well as lifelong peace of mind for your family and finances. And applying for permanent life insurance is simple with Quility.
Fill out our quick form and one of our insurance experts can shop 80+ insurance companies to find a policy premium that fits your budget.
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