The first thing that usually comes to mind when thinking of life insurance is the death benefit—the amount of money that is paid out to your beneficiaries when you die. That for the most part is the main reason most people get life insurance.
There are two major types of life insurance. Term life insurance provides protection for a specific period of time (the “term”) such as 10 or 20 years, and generally pays a benefit only if you die during that term.
Permanent life insurance, by contrast, provides lifelong protection, as long as you pay the premiums. Because it is designed to last a lifetime, permanent life insurance generally accumulates cash value. That means there are some important living benefits to permanent life insurance, benefits you can take advantage of to fund life’s possibilities.
Life Happens lists 5 things you probably didn’t know you could do with permanent life insurance.
1. Fund your college education. Over time, your policy accumulates cash value, and you can borrow against the cash value and use it to help pay for your education. You can actually use the money for anything you want, but a good example is paying for college. No applying for loans or financial aid forms. Just ask for the money and it’s yours.
Tapping the accumulated cash value of your policy will have an impact on your death benefits, so be sure to discuss your plans with your financial advisor.
2. Starting a business. The hard part of starting a business is that banks don’t lend money to businesses without revenue. This means you need to fund the business yourself, either from your own savings or by borrowing from friends and family. One often overlooked source of funds for a new business is the cash value of your life insurance policy. If Walt Disney can borrow from his life insurance to create Disneyland, you can use your life insurance to make your dreams come true too.
3. Take time off to care for an elderly parent. No one likes to think about these things but your mother and father are not getting any younger. Just think of how fortunate you can be to take time off of work to spend time with your family. One can do so by tapping into the accumulated cash value of a life insurance policy.
Unlike sending a kid to college or starting a business, you can’t control the timing of these sorts of family emergencies, but you can make sure you are prepared financially when it happens.
4. Get funds if you contract a chronic illness. If you become ill, and remain ill enough that you can’t perform two of the six activities of daily living, some permanent life insurance policies may allow you early access to your death benefit (Life Happens). You effectively get use of the money from your death benefit while you are sill living, and then your beneficiary would get any remainder when you die.
This reduces the benefits to your beneficiaries when you happen to die so this is not a substitute for long-term care insurance.
5. Grow your 401k. Because of the safety provided by your life insurance policy, you may be able to take a more aggressive allocation strategy in your 401K investment plans. Also, because you can tap into the cash value of your insurance policy to cover those first few years of retirement, you can let the funds in your 401(k) grow more.
These ideas aren’t for all. They were mentioned to show you some of the different options people can benefit from their life insurance policies. Talk to your advisors to ensure they are appropriate for your situation, but know that life insurance is for more than just paying out a death benefit. If you have any other questions or concerns about life insurance please contact us at Watson Insurance in Johnstown, PA.
Off Life Happens Blog
by Raymond Caucci – Penn Mutual Life Insurance