No matter who you are or what your background is, if you would like to protect your loved ones from financial burdens after your death, getting quality life insurance coverage is the best route to take. This is especially true if you are a primary breadwinner for your family or if you have outstanding debts that you don’t want to pass to your loved ones after you pass.
However, despite its advantages, a large percentage of Americans are still living without life insurance coverage. There are many reasons for this, and one of those reasons is the idea that the insured person isn’t able to enjoy the benefits of their plan since these benefits are only given after their death.
What many don’t know is that a life insurance plan offers benefits both after the insured passes and while they are still alive. Knowing the difference between living versus death benefits and how you can access them is key to understanding the full extent of what life insurance can do for you and your family.
Life insurance is a financial agreement between a person and an insurance company. The customer agrees to pay a regular premium payment for the length of the policy and the company agrees to pay benefits if certain criteria are met within the policy’s validity period. The most well-known benefit is a lump sum or regular payments to an insured person’s named beneficiaries (usually family and loved ones) upon the person’s death.
One of the main distinguishing factors between one policy and another is the nature of the terms and conditions that go along with your coverage. Things like how long your coverage lasts, how much your premiums are, how long after your passing the company will wait before paying benefits, how much is paid out in benefits, and how those benefits will be distributed all play a major part in customizing your policy to meet your needs.
Having a life insurance policy will help protect your loved ones in the event that you pass away unexpectedly. Things like loss of income, debt inheritance, and even funeral costs can bring a family to financial ruin if the primary breadwinner dies. Life insurance makes sure that the loss of a loved one is not compounded by monetary crises. This is considered a “death benefit” of your policy.
However, a life insurance policy also offers certain benefits that can be used while you, the insured, are still alive. This makes your coverage versatile and turns it into an effective strategy for managing your finances.
Death benefits are simply the payment or payments made to your named beneficiaries at the event of your death. Typically, this is made in a lump sum payment that does not qualify as income and is therefore not taxed as income. A beneficiary can choose to get this sum all at once or through regular payments. It is the responsibility of the person insured to maintain the information that the beneficiaries will need in order to claim the death benefit. The insurance provider will need both proof of coverage and proof of death before paying the death benefit.
This is the main purpose of life insurance, allowing you to ensure that your beneficiaries will receive sufficient financial support after you are no longer there to provide for them. However, this is not the extent of the advantages that life insurance provides to policyholders. Those with certain types of coverage can enjoy the benefits of their policy before their death.
These can be easily confused with “living benefits riders”, but are not the same. A rider on your policy is an extension or addendum that can be purchased to offer greater flexibility and more options when it comes to your benefits and premiums. One example of a living benefit rider is an “accelerated benefits rider”, which allows the insured person to take out an advance on their death benefit while they are still alive. This is sometimes done for long-term care to help pay for medical bills in the event of an accident or illness.
However, true living benefits do not take away from the death benefits, but exist on their own as a part of your core policy. For the most part, these benefits are only available to those that have a form of permanent life insurance such as whole life. Permanent plans provide coverage for the entire life of the insured and usually have premiums and benefits that are locked in at the point of purchase.
Many of the living benefits provided by your policy will be the direct result of accumulated cash value. With this option, part of the premium that you pay for your coverage will be saved in an account within the policy. This savings is called your cash value. The primary purpose of cash value is to have a portion of the premium returned to you if you canceled your coverage. The cash value of your policy will grow with interest that is tax-deferred and can be used at any point for a wide variety of things such as:
Remember that these are living benefits and are not a part of the sum paid after your death. The insurance provider will keep the remainder of your policy’s cash value if it is unspent at the time of your death.
While term life insurance doesn’t accumulate cash value, and therefore doesn’t have true living benefits, you can purchase an accelerated benefits rider to be able to use some of your death benefits to cover unexpected expenses. If your death benefit is $200,000 and you use your accelerated benefits rider to take out $150,000, the insurance company will only pay the remaining $50,000 upon your death to your beneficiaries.
Like with many aspects of life insurance, the better option heavily depends on your unique situation, preferences, and goals. Building cash value on your policy means higher premiums but provides a secure savings growth for years to come that also serves as compensation for surrendering coverage. Living benefits riders allow for more flexibility on when your death benefits are provided, giving you the peace of mind knowing that you can access your death benefit if the need arises.
You will also need to choose between term and permanent life insurance based on what you want your policy to do for you and your family. Talking to an insurance specialist and going over your situation can help you determine the details of your policy such as how much coverage to get, how high your premiums will be, what riders will be added on, and how long you want to be covered. There is no one-size-fits-all approach to life insurance and each case is unique.
Here at Life Quote, we have a client-first attitude that keeps your needs at the forefront of every aspect of our service. We specialize in life insurance and have helped insure millions of customers nationwide. We only partner with the highest-rated providers and we work alongside you to match your needs with the policy that is tailored for you. Contact us today to get a quote from our life insurance experts and get started on the road to protecting your family and your finances today!