We all know that we should have life insurance. Taking out a policy to cover your loved ones in the case of your untimely death is something we should all do. This is especially important to those of us who have dependents or loved ones we want looked after properly after our death. Life insurance comes with many standard benefits such as lump-sum payments on death, critical illness cover, and spousal cover. But, if you’ve had a policy running for a long time, there are actually ways you can benefit from your life insurance policy while you’re still here. In this article, we’re going to discuss exactly those extra benefits and how you can tap into them. If you have some cash tied up in an insurance policy and think you may want to use it, read on to find out our top 6 ways you can benefit from this cash.
1. Settlement or Surrender
First off, there is the option to completely sell your life insurance policy to cover other costs. There are many financial alternatives to seeing out the full policy, this being the most full-on version – to fully sell it. It may seem extreme, but there are many situations where this is actually a really good idea.
For example, imagine an aging couple who have entered a nursing home. The bills are quite expensive and their families are having to cover these costs. But, they have a life insurance policy which they have held for many, many years. This policy has a huge cash value. So, in this instance, it may be preferable for them to seek help in selling the policy to use the money for their care while they are alive. They may not obtain an offer for the full value of the policy, but the money is far better used now than later, saving the family from entering into debt to pay for their care needs.
2. Boost the Death Payout
Most life insurance policies have a cash value alongside a set on-death payment. This cash can accrue over time and become quite a large sum. If you are the opposite of the example above and see absolutely no need to keep or use the cash value of the policy, you could instead transfer that money into the death payment part of your policy.
This would mean that your beneficiaries would receive far more money when you do pass away, which could be a very appealing option for some people. After all, it’s nice to know you’re leaving enough money to help get your next generations set for life.
3. Insurance Loans
An alternative to transferring all the cash into your death policy or selling the whole policy off is to take out a loan. The loan would be provided by your insurance company and would be up to the cash value amount of your policy. This gives you access to some funds now, that you can then pay back over time. The real benefit here is that most insurance companies will provide you with this loan at a much lower rate than most banks would. A cheap, affordable, and easy loan that you can use however you wish during your retirement.
Imagine you have a $50,000 cash value insurance policy with a lender and you have just retired. You have a steady pension that will be able to sustain you plus some low-interest loan repayments for many years to come. However, it is not enough money to take you on the holiday of a lifetime. This would be a perfect time to take out a loan, say $10,000, from your insurance policy, take that dream holiday, and pay it back to your insurance company over the following 5-10 years!
4. Transfer Into Retirement Savings
As we have mentioned, there is often a huge cash value to many insurance policies like these. Fortunately, many insurance brokers now allow you to use this cash to your benefit. Lots of them allow for the cash value of your policy to be reinvested into funds that can grow and pay you actual cash in your retirement. As a true bonus benefit, this cash is often paid back to you completely tax-free!
5. Use Cash Value to Pay Premiums
Even if you have accrued a large cash value in your policy, you may still be making monthly payments called premiums. These continue to contribute to your death payout, as well as helping cover the cost of managing your insurance policy. Often, as we age, our cash flow diminishes, leaving us struggling to pay these premiums.
Luckily, most insurance lenders will actually allow you to use the accrued cash value of your policy to pay your premiums. Instead of taking money out of your bank account every month, the insurance takes from your cash premium. This can be arranged for a fixed amount of time or, if preferable until the cash value has fully diminished.
6. Simply Make a Withdrawal
Of course, the cash value of your policy does offer one simple opportunity: withdrawing cash. You can usually withdraw any amount up to and including the full cash value of your policy. There are, however, a few potential drawbacks to this depending on your lender.
For example, with some lenders, withdrawing the cash will reduce your life payout portion of your policy by the same value. So, if you have a policy valued at $100,000 cash and $200,000 life payout and you withdraw $50,000, you will end up with a $50,000 cash and $150,000 life payout valued policy. With other lenders, a cash withdrawal will actually completely wipe out your death payout value, reducing it to $0. It is best, as always, to discuss options with your lender before attempting to make a withdrawal.
As you can clearly see, there are so many unexpected bonus benefits to your life insurance policy. Cash values can be used while you are alive or boosted when given to your family after your death. Either way, there are plenty of ways to make sure you are maximizing the payments you have made all these years.