CHICAGO, June 28, 2022 (GLOBE NEWSWIRE) — One of the benefits of purchasing a life insurance policy is the death benefit. This helps loved ones replace the insured’s income and pay off debts if the insured dies during the term of the policy.
However, life insurance policies may also provide living benefits while the policy is in force. These benefits can help the policyholder get the most out of their premium payments. This article will look at how living benefit life insurance can help policyholders while they are alive and the policy is still in force.
1. Cash withdrawals
Cash value is a growth component of permanent life insurance policies. A portion of each permanent policy premium goes into this component, which then grows tax-deferred at a certain rate depending on the type of permanent policy.
Once the cash value becomes large enough, policyholders may be able to withdraw funds from it for any purpose, such as emergencies, major purchases, or their children’s school fees. Keep in mind that proceeds above the policyholder’s base, or the amount originally invested, may be taxable.
2. Take out loans against cash value
Policyholders can also borrow against their cash value when it becomes large enough. These loans often do not require a credit check, virtually guaranteeing approval and avoiding credit impact. Also, these loans usually have no maturity date and rates tend to be low.
The IRS does not consider loans as income, so the policyholder also avoids taxes. Therefore, cash value loans can be a tax-free source of funds for the policyholder. However, interest accumulates slowly and is added to the loan balance. If the loan becomes greater than the remaining cash value, the policy may expire.
3. Premium refund
Term life insurance has a fixed term of 10 to 30 years. Usually, if a policyholder outlives the policy, they lose their coverage but don’t get their premiums back. But that’s not the case with term life insurance premium refunds. These policies have higher premiums than traditional term life insurance, but the insurer reimburses the insured for all of their premiums if they survive the policy.
This can be a great benefit for policyholders who are confident they will outlive the policy, but still want coverage in case the worst happens.
4. Life Insurance Riders
Life insurance riders can allow the policyholder to receive a portion of their death benefit for various purposes before their death. For example, policyholders can add an accelerated death benefit rider to their policy. This rider allows early access to the death benefit if the policyholder is diagnosed with a terminal illness, and the funds can be used to pay for medical bills, travel or anything else they might need.
The bottom line
Life insurance is not only a tool allowing policyholders to cover their beneficiaries after their death. Permanent life insurance policies allow policyholders to build wealth through cash value, and they can withdraw or borrow against that cash value later.
On the other hand, if a policyholder wants a term life insurance policy, he can get a return of premium policy to receive his premiums after he survives the policy. And regardless of policy type, policyholders may be able to add a rider to receive their death benefit sooner if needed.
Policyholders should consider these living benefits of life insurance when researching quotes. That way, they can get a policy with the features and benefits that fit their budget and situation.
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