Did you know that life insurance can provide more than just the death benefit? Life insurance also has living benefits! A living benefit is one that allows the policy holder to utilize policy cash values and riders while the insured is still alive.
Whole life and Universal life policies are considered permanent types of coverage because they last for the insured’s entire lifetime. Both types of policies have cash value components that allow the policy holder to access the cash for any reason.
- Whole life
Whole life policies have fixed, level premiums. One of the features of whole life policies is the savings component that allows cash to accumulate on a tax-deferred basis at a stated interest rate. The cash can be utilized for a variety of purposes such as funding a child’s college education, paying for a large purchase or unexpected expense or supplementing retirement income. The policy owner can make withdrawals from the accumulated cash value tax-free up to the value of the total premiums paid. The policy owner also has the option to borrow against the cash value in the form of a policy loan. Interest is charged on policy loans and the death benefit is reduced by the unpaid amount of the loan.
- Universal Life
Universal Life policy premiums have two components- the cost of insurance (COI) and a savings or cash value component. The COI is the minimum premium payment required to keep the policy active and includes charges for mortality, policy administration and other expenses. Unlike Whole Life policies, Universal Life policies offer flexible premiums. Policyholders can remit premiums that are more than the COI which will add to the cash value. There are limitations to the maximum amount you can remit. If the amount of the cash value is sufficient to cover the COI, policyholders can skip or pay reduced payments. Policyholders may also withdraw from the cash value or borrow against it. Interest is charged on policy loans and unpaid loan balances can reduce the death benefit.
Long-term Care Rider
Some of the insurance carriers we work with offer permanent insurance policies that include a Long-term care rider. This is a valuable benefit, as you can utilize this rider to pay for the cost of long-term care. Long-term care could be in-home nursing care or in a facility. If you do not use the long-term care benefit, the death benefit is still intact and payable to your beneficiaries upon your passing. Please consult your agent for more details regarding long-term care riders.
Accelerated Death Benefit Rider
Several carriers offer an Accelerated Death Benefit rider on term and permanent life insurance policies. The rider allows the policy owner to advance part of the death benefit prior to the death of the insured in the event that the insured is diagnosed with a terminal illness. Some policies even allow this benefit to be used if the insured is diagnosed with an illness that is expected to reduce their lifespan, if they need an organ transplant or if they are in hospice care.
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