Life insurance is often associated with the funds provided to your family when you are no longer present. Are you aware of the fact that your life policy can be a resource for you too while you are still alive? In fact, insurance policies for your life—of a permanent nature especially—can offer a wide range of financial possibilities to benefit you in many ways.
Here’s how you can take the greatest possible advantage of your life insurance policy while you are alive, and still be able to save for your future financial well-being.
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1. Employ Cash Value to Pay Premiums
The majority of people are in the dark about the fact that permanent life insurance policies, like whole life or universal life insurance, accumulate a cash value as time goes by. This cash value is made up of the premiums you have been paying and it grows at a stable rate of interest depending on the policies of your insurer.
When your policy’s cash value is sufficient you can choose to utilize it to pay your premium payments. This approach enables you to keep your coverage, which comes in handy if you are facing unexpected financial difficulties. Nevertheless, you need to keep an eye on your account balance because depleting it might cause your policy to lapse if you fail to resume payments.
2. Get a Loan against Your Insurance for Declared Emergencies
Life insurance might turn out to be your emergency budget through a cash value loan. Instead of getting a loan from elsewhere at high-interest rates, you can simply get money from your policy. The interest rates for these loans are normally significantly lower, and since the money comes from your very account, taxes are none of your concern.
On the other hand, you should be cautious about the lasting effects. Non-repayment of the loan is not only the reduction of your death benefit but also the possibility that your beneficiaries will not receive the full payout. The provision is good for those with temporary requirements, but it also demands repayment discipline.
3. Benefit From Living Benefits in Case of a Critical Illness
A few life insurance policies provide a living benefits rider that allows you to take a part of your death benefit in advance if you are diagnosed with a critical illness. This part might be a lifesaver in the event of skyrocketing medical expenses and other financial needs. Unlike you, beneficiaries will receive a reduced payout, but this provision shields the neediest.
Reading the details of the policy and the consequences while using this option are of the utmost importance for you to know the costs and percentages of your death benefit that you can avail of.
4. Get Cash by Selling off Your Policy
Feeling tired of your policy or having no more use of it, giving it up could be an easy way to get cash. Here you will receive your policy’s cash value less any operation charges or penalties. It will… it will give you direct access to the money, but in doing so, you will stop the life insurance cover, and the family will never receive any death benefits.
Deciding on this course requires thorough judgment of the advantages and disadvantages and consideration of how it fits with the rest of your financial plan.
5. Trade Your Life Insurance for Money with Immediate Effect
Possibly, it is not popular knowledge that policyholders, including pensioners, can pursue the path of getting rid of their life insurance policy, a process that is known as life settlement. The decision to let go of the coverage can benefit people who are experiencing financial difficulties and those who no longer require life insurance coverage.
Even though the policy’s face value is not paid in full, the selling of it can offer a huge amount of cash. Nevertheless, remember that selling life insurance includes numerous costs besides just paying a broker and the tax on the proceeds. In addition, selling the policy shifts the death benefit to the buyer from which your beneficiaries won’t benefit.
Think About the Effects on Your Future
Before pulling the money out of your policy, it is important that you look for the potential long-term negative effects. A quick loan doesn’t necessarily involve a lengthy process of acquiring money but you should recognize the fact that your family’s death benefit from the insurance company may be less. If you decide to take money as loans, make withdrawals, or sell your policy, you must still ensure that you can maintain your overall financial security in the future.
What Precautionary Measures to Take?
Before you breach your life insurance terms or use your policy for unintended purposes, it is suggested that you adhere to the steps below:
- Review your requirements: Whether there might be better alternatives to borrowing such as your savings or a 0% interest credit card you might have.
- Know everything about your policy: Find out the amount of cash value you’ve added to your policy and see if there are any benefits your policy can bring besides death benefits.
- Meet with your financial advisor: The services of an insurance agent or a certified financial planner can prove valuable in discussing your options and ultimately assist you in figuring out the best action to take.
Understanding your life insurance policy and looking at the ways it can provide you with both a financial cushion and liquidity can be part of your strategies to minimize risk, increase the success of your goals, and hence secure your family’s financial future.
