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 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.

You can borrow against the cash value and use it to help pay for college or other secondary education.

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 financial and professional advisors to ensure they are appropriate for your situation, but know that life insurance is for more than just paying out a death benefit.

  1. So there are a lot of another benefits of a permanent life insurance. Its premium is more expensive though. Hmm.. Those other benefits can be found somewhere else, don’t you think? There are a lot other investments for college funds. Although if you think that you really need a life insurance than go get one. However, do not get it because of its other benefits. Those are just marketing strategies from insurance companies. That does not tell the whole story for you. That’s what I think.

    David – Beaconlifefunds.com

  2. I really appreciate this information on life insurance and its many benefits. I have been looking into going into this career, and I would love to work in a field that provided people so many benefits. I think it is great that life insurance can help those with chronic illnesses. Thanks for the information!

  3. “Borrowing” means paying it back and paying interest on the payment. Why would you do that with your own money? There’s no cash value unless you pay the premium so, the money comes from you. So, why would you pay interest to borrow your own money? That sounds stupid. Buy term insurance which is cheaper and put the money you save in an account that pays interest to you instead of you paying interest to them. Come on people. Think!

    1. Do you know of any investment that can guarantee a 5% guaranteed rate of return with uninterrupted compounded interest? At what rate can you borrow money if you needed to? The average American saves 3% of their income so do you do to help people create financial independence? Do you know what percentage of term life insurance pays the death benefit? How many people that you have recommended that they buy term and invest the difference actually did have a difference to speak of? What is the Collateral capacity of most Americans?

    2. Dylan,

      The strategy you are explaining is buy term and invest the difference. Which works for some people. But others buy term and spend the difference (one reason why the average American spends 1.10 of every 1. Is lack of commitment to themselves and current lifestyle over future lifestyle. Also if you invest you have to deal with the market fluctuations. In the WL you don’t (there is no market risk). Also, what about the fact that the company pays dividends. So that can offset the “borrowing” aspect. now don’t even get me started on TAXES! you fund the insurance with after tax dollars so when you “borrow” you don’t pay taxes on any dollars. Money in investments is typically taxed. No one plan works for everyone. Financial plans are intended to be unique and Tailored to people’s specific situations. Lastly, chose your company wisely. There are only 4 worth evaluating. NYL, Mass Mutual, Northwester Mutual, and Guardian (no particular order). I find that Guardian does the best with having accurate illustrations and unlike some of the others, they are more clear cut and have less variations in loan rates. I.e. They charge less fees to their shareholders.

      I own both term and WL. and I also advise people on which makes most sense for them. You are right. People need to think!!!! And think for themselves not take financial advise from the dog walker or Uncle Jimmy. We don’t tell the OB/GYN how to deliver the baby. We trust they know what’s best for us. Same applies for ALL services finances included.

      1. Is there a particular reason you failed to list State Farm Life Insurance. With a Superior AM Best rating, more agents to provide service than there are McDonalds, not to mention they are the largest writer of individual Life insurance in the country. Their Bond Portfolio is of the highest quality, and as a mutual company, they pay great dividends.

        Kind regards.

  4. Raymond you didn’t mention the con’s. I think it only fair if you are going to sell the pro’s you should talk about all sides.

    1. Largest con. You have to be discipline in saving. It takes about 10 years to see every dollar you ever funded back in cash value to be accessed. People can’t stay on a diet for a week and we are asking people to be consistent for 10+ years. It’s tough but we need to pay ourselves first and spend what’s left. Not spend first and save last. Priorities priorities priorities.

  5. When you borrow money you never get tax. Money borrow from your life insurance are tax advantage as long as you meet certin guidelines. Wink. In compare of 401k you will be taxed on gains .

  6. What a pile of trash. Why would I borrow my own money? It takes a while to see cash value build up and then if I die they keep my cash value in a hole life. Yeah hole life. Where your $ goes down a hole never been seen again. Stick to Term Life. It’s cheaper & invest in tax managed mutual funds.

    1. Term life only pays a death benefit 1% of the time. So you have a 99% chance to outlive the coverage. So why fund something for 30 years to only have a 1% chance of having a return. WL has a growing DB so yes u forfeit the CV when you pass away but your DB grew at virtually the same rate so you don’t lose it actually at all. Ever. Unless you cancel and back out (worst decision EVER.)

    2. So if you could “borrow” or use your cash and still earn a 5% dividend on what you spent while only paying it back at 3% you’re telling me that’s a bad thing??? Stephen is 100% correct, buy all the term you want because at the end of the day it’s the most expensive insurance there is. Cheap when you’re young and there is a 1% chance it’s used, but then try renewing it at age 50 and compare to the whole life over the same time period. If you buy a limited pay whole life policy of say 20 years, after 20 years you can take your cash out effectively netting your entire cost to $0 and still have a modest policy fully paid up for the rest of your life. Again, I ask which is better 20 year term at $50/mo for a 30 year old for 20 years that you outlive = a cost of $12,000 OR a 20 year WL policy at $500/mo for 20 years that has a $160,000 cash value and a $460,000 death benefit means you paid $120,000 that you can take back out and there is $40,000 of cash value and $340,000 of death benefit left for the rest of your life without ever paying again. That won’t beat market performance but it’s definitely better than being $12,000 lighter in the pocket and no life insurance.

  7. I have never really thought about getting life insurance until recently. But, I think it would be such a good thing to get. I like that it can help grow my 401 (k). I think that is a huge benefit that I should start taking advantage of now!

  8. Nice piece here. I think that one thing we should consider is using life insurance with an LTC insurance rider. Fewer and fewer carriers are offering true LTCI anymore, so your life insurance policy will become even more valuable.

    Chris Acker, CLU, ChFC

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