One advantage of getting a life insurance policy is the death benefit. This helps loved ones replace the policyholder's income and pay off debts if the policyholder passes away during the policy term.

However, life insurance policies can also offer living benefits while the policy is in force. These benefits can help the policyholder make the most of their premium payments. This article will dive into how life insurance with living benefits can help policyholders while they are alive and the policy is still outstanding.

1. Cash value withdrawals

Cash value is a growth component of permanent life insurance policies. Part of each permanent policy premium goes into this component, which then grows tax-deferred at a certain rate depending on the permanent policy type.

Once the cash value grows large enough, policyholders may be able to withdraw funds from it for any use, such as emergencies, large purchases, or college tuition for their children. Keep in mind that proceeds above the policyholder's basis, or the amount initially invested, may be taxable.

2. Taking out loans against the cash value

Policyholders can also borrow against their cash value when it grows large enough. These loans often don't require a credit check, virtually guaranteeing approval and avoiding credit impact. Additionally, these loans don't usually have a due date, and rates tend to be low.

The IRS doesn't count loans as income, so the policyholder avoids taxes as well. As a result, cash value loans can act as a source of tax-free funds for the policyholder. However, the interest slowly accumulates and adds to the loan balance. If the loan grows larger than the remaining cash value, the policy can lapse.

3. Return of premium

Term life insurance lasts for a fixed period of 10 to 30 years. Usually, if a policyholder outlives the policy, they lose coverage but don't get their premiums back. But this is not the case with return of premium term life insurance. These policies have higher premiums than traditional term life insurance, but the insurer repays the policyholders all their premiums if they outlive the policy.

This can be an excellent benefit for policyholders who are confident they'll outlive the policy but still want coverage in case the worst happens. 

4. Life insurance riders

Life insurance riders can allow the policyholder to receive some of their death benefit for various purposes before passing away. For example, policyholders can add an accelerated death benefit rider to their policy. This rider allows early access to the death benefit if the policyholder is diagnosed with a terminal illness, and funds can be used to pay for medical bills, travel, or anything else they may need.

The bottom line

Life insurance isn't just a tool for policyholders to cover their beneficiaries after passing away. Permanent life policies allow policyholders to build wealth through cash value, and they can withdraw or borrow against that cash value down the road. 

On the other hand, if a policyholder wants a term life insurance policy, they can get a return of premium policy to receive their premiums back upon outliving the policy. And regardless of policy type, policyholders may be able to add a rider to tap their death benefit early if need be.

Policyholders should consider these living benefits of life insurance when shopping for quotes. That way, they can get a policy with the features and benefits that fit their budget and circumstances.

For all media inquiries, contact: 

Laura Zimmerman, Chief Marketing Officer
laura.zimmerman@fidelitylife.com, (312) 288-0068