When you think of life insurance, what usually comes to mind is the death benefit—the amount of money that is paid out to your beneficiaries when you die. And that certainly is the main reason most people get life insurance.
Keep in mind, however, that there are two major types of 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.
Here are five things you probably didn’t know you could do with permanent life insurance.
1. Fund a college education. Over time, your policy accumulates cash value, and you can borrow against the cash value and use it to help pay for college or other secondary education. Actually, you can use the money for anything you want, but the example here is paying for college. No applying for loans from the bank. No 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. Start a business. The hard fact 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. A work colleague of mine talks about how fortunate she was to be able to step out of work earlier in her career to spend time attending to family matters. She was able to do that in part because she could tap into the accumulated cash value of her 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 have a chronic illness. If you become chronically 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. You effectively get use of the money from your death benefit while you are alive, and then your beneficiary would get any remainder when you die.
Of course, this reduces the benefits to your beneficiaries so this is not a substitute for long-term care insurance.
5. Grow your 401(k). Because of the safety provided by your life insurance policy, you might be able to take a more aggressive allocation strategy in your 401K investments. 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 much longer.
These ideas aren’t right for everyone. I mention them here merely to illustrate some of the ways other people have made use of the living benefits of their life insurance. Talk to your Colonial agent today to ensure they are appropriate for your situation, and remember that life insurance is for more than just paying out a death benefit.
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