Living Benefits of Life Insurance
Permanent life insurance may be considered a potential funding source for long-term care costs because of its cash values. Policy-owners can typically access their cash values in the following ways; policy loans, partial withdrawals and full surrender. Below are some examples of living benefits.
Policy Loans
The cash value you accumulate is an asset on your balance sheet with unique characteristics compared to other assets, such as your home, business, investments and retirement funds. You may borrow money from the cash value of your policy for any reason. Policy loans can be tapped for funds to purchase a home, invest in a business or commercial property, handle a financial emergency, or supplement retirement income. Death benefits are reduced if the loan is not repaid.
The cash value you accumulate is an asset on your balance sheet with unique characteristics compared to other assets, such as your home, business, investments and retirement funds. You may borrow money from the cash value of your policy for any reason. Policy loans can be tapped for funds to purchase a home, invest in a business or commercial property, handle a financial emergency, or supplement retirement income. Death benefits are reduced if the loan is not repaid.
College Savings
Life insurance cash value is one of the few assets not considered in federal college financial aid calculations. Families with college-age children who have permanent life insurance policies not only can use the policy’s cash value (via policy loans) to pay college tuition and housing expenses, but also might benefit from greater financial aid opportunities. |
Long-Term Care
If paid-up additions have been purchased with dividends during the life of your policy, you may be able to surrender them tax-free to pay for long-term care (LTC) insurance premiums. This will decrease the policy’s death benefit and cash value as well as future dividends but could help you to fund long-term care if you so choose. There also are other options for paying LTC premiums with your cash value. A financial representative can tell you more about these options for using your life insurance policy.
If paid-up additions have been purchased with dividends during the life of your policy, you may be able to surrender them tax-free to pay for long-term care (LTC) insurance premiums. This will decrease the policy’s death benefit and cash value as well as future dividends but could help you to fund long-term care if you so choose. There also are other options for paying LTC premiums with your cash value. A financial representative can tell you more about these options for using your life insurance policy.
Accelerated Death Benefits
Some life insurance policies offer an accelerated benefits feature under which a portion of the death benefit can be paid out in advance of the insured’s death if the insured experiences a health-related condition that creates an urgent need for cash. For example:
- a terminal illness
- entry into a nursing home
- disability
The accelerated benefit feature is helpful in such situations, the payment of accelerated benefits reduces the amount of the policy’s death benefit. It may be true that the insured has a more immediate need for the money than his or her ultimate beneficiaries, when the insured does die it will pay out the remainder of the death benefit, this still may put the survivors in a financial bind.
When you add, or already have, the long-term care rider to your permanent life insurance policy, any payout is an acceleration of your life insurance death benefit.
- The long-term care benefits are paid income tax free after qualifying requirements are met.
- If you never need long-term care, your beneficiaries will receive an income tax-free death benefit as long as your policy remains in force.
- If you do need long-term care, your beneficiaries will still receive the greater of any unused long-term care benefits or 10% of the based policy’s specified amount (less any policy indebtedness) thanks to the guaranteed minimum death benefit.
Life Insurance and Long-Term Care mixed together can be structured in a number of ways to meet your needs. The most common premium payments when creating a plan are: 1) monthly/ annual premium payments spread out through the years. 2) A onetime premium payment/ rollover of $50,000 or more to create an instant plan.