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5 Things You Didn't Know Life Insurance Could Do


When you think of life insurance, what usually comes to mind is the death benefit -- the amount of money that is paid out to the beneficiary when someone dies. While the death benefit is the main reason most people buy life insurance, it definitely isn't the only thing it's capable of.

If you get the right type of life insurance, it can provide numerous "living benefits" that you can take advantage of throughout your lifetime. (Side note: there are two main types of life insurance: term and permanent. Term insurance provides coverage for a specified period of time ex: 10 years, 20 years. When the time period ends, so does your coverage. Term insurance does not have cash value. Permanent insurance on the other hand provides coverage until the day you die, as long as you continue to pay the premiums to keep the policy in force. A large perk of permanent insurance? It has cash value that you can use for multiple purposes.)

Here are 5 things you probably weren't aware that you could do with permanent life insurance:

1) Start a business

Starting a business takes money. But cash isn't always something that everyone has ready access to. So what do you do? Go to the bank? The problem with that is that banks don't lend money to businesses with no revenue. This leaves you to either fund the business yourself, or borrow from friends and family. Not everyone is comfortable doing that. But one often overlooked source of funds for a new business is the cash value in your life insurance policy. If Walt Disney can use the cash in his life insurance policy to create Disneyland, you can use it to start your dream too.

2) Grow your 401(k)

The cash value in life insurance policies is protected from the volatility of the stock markets, and has guaranteed growth year after year. Because of the safety that your life insurance policy provides to the cash you put into it, you might be able to take a more aggressive strategy with your 401(k) investments knowing that you have funds protected in your life insurance policy that you could draw on during the first few years of retirement, letting your 401(k) grow a little longer.

3) Pay for a college education

You can borrow against the cash value in your life insurance policy for any reason, the life insurance company doesn't dictate what you can use it for -- it's your money! But one great use for the cash in your policy is paying for college tuition, or other secondary education. Skip applying for loans, filling out financial aid forms, just ask for the money and it's yours. Life insurance also offers a much more attractive alternative to 529 college savings plans as the funds put into that vehicle can only be used for college. What if your child decides college isn't for them? Take the money out for any other reason you can be hit with penalties and income tax bills. With cash from your life insurance policy, you can use it however you want.

4) Take the time to care for an elderly parent

We can't control the things that life throws our way, or the timing of it all. When family emergencies arrive, and a family member needs care for a period of time, you may or may not be in a position to take the time away from work and continue to pay all the bills that will continue to come in. Cash that you have built up in your life insurance policy can be a safety net for when things happen.

5) Receive funds for a chronic illness or long term care

If you become chronically ill, or find yourself needing long-term care, some permanent life insurance policies have a benefit that allows you to receive an accelerated portion of the death benefit in advance, or if you added long-term care riders to your policy at the time you purchased it, it will cover a portion of your long-term care costs according to the details laid out in the policy. This is a great alternative for people who might not be able to afford a free-standing long term care policy but still want some protection. Essentially you get to use a portion of your death benefit for these situations while you're alive, and then your beneficiary would get any remainder when you die. If you never had to trigger these benefits in your policy, the entire death benefit would be paid to your beneficiary. But it can provide peace of mind to know it's there if you need it.

IMPORTANT TIP:

It's important to remember that if you pull cash out of your life insurance policy, and you pass away before putting the money back into your policy, it will affect the death benefit amount that your beneficiary will receive. You are not required to put the money back into your policy, but if that doesn't happen, the numbers in your policy will be adjusted accordingly. Wonder how a withdrawal will affect your policy? Want to ensure that you have cash to access, but you also want to guarantee that your family will receive a specific amount after your passing no matter what? Talk to your agent, they can make it happen and answer all of your questions.

These are only some of the things that you can do with a cash value life insurance policy. It is important to talk to your insurance professional about what your goals, concerns, and needs are, and what is important to you. The beauty of life insurance products is that they can do whatever you build them to do. A great agent will customize a policy to fit you specifically.

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