Using Life Insurance While Alive: A Guide

Most people think of life insurance as a way to provide for their loved ones after they pass away. However, did you know that there are ways to use your life insurance policy while you’re still alive? In this article, we’ll explore the different options available to policyholders and how you can make the most out of your life insurance while you’re still alive.

What is Life Insurance?

Life insurance is a type of contract between an insurance company and a policyholder. In exchange for regular premium payments, the insurance company agrees to pay out a lump sum of money to the policyholder’s beneficiaries upon their death. This can help to provide financial support for loved ones who rely on the policyholder’s income or care.

However, there are other ways to use your life insurance policy while you’re still alive. Let’s take a closer look at some of these options.

Using Your Life Insurance Policy While Alive

Option 1: Borrow Against Your Policy

If you have a whole life insurance policy, you may be able to borrow against the cash value of the policy. This can be a useful option if you need to access money in an emergency or for a large expense such as a down payment on a home.

Keep in mind that borrowing against your policy will reduce the death benefit that your beneficiaries receive when you pass away. You’ll also need to pay back the loan with interest, or the unpaid portion will be deducted from the death benefit.

Option 2: Sell Your Policy

If you have a term life insurance policy, you cannot borrow against it. However, you may be able to sell your policy to a third party through a process called a life settlement.

In a life settlement, a company buys your policy from you for a lump sum of cash. The amount you receive will depend on factors such as your age, health, and the size of the death benefit. This can be a good option if you no longer need the policy or if you need cash for a large expense.

Keep in mind that selling your policy will mean that your beneficiaries will no longer receive a death benefit when you pass away.

Option 3: Use Your Policy for Retirement Income

If you have a permanent life insurance policy, you may be able to use it to supplement your retirement income. This can be done through a process called a life insurance retirement plan (LIRP).

A LIRP allows you to build up cash value in your policy over time, just like with a whole life insurance policy. When you reach retirement age, you can then withdraw money from the policy tax-free to supplement your other retirement income.

Keep in mind that this option requires careful planning, and you’ll need to work with a financial advisor to make sure it’s the best choice for your situation.

FAQs

Can I borrow against my term life insurance policy?

No, you cannot borrow against a term life insurance policy. These policies do not build up cash value over time like whole life insurance policies do.

Can I sell my life insurance policy for any reason?

Yes, you can sell your life insurance policy for any reason. However, keep in mind that this will mean that your beneficiaries will no longer receive a death benefit when you pass away.

Can I use my life insurance policy for retirement income if I have a term policy?

No, you cannot use a term life insurance policy for retirement income. This option is only available for permanent life insurance policies such as whole life or universal life.

Conclusion

Your life insurance policy can be a valuable tool for providing financial security for your loved ones after you pass away. However, there are also ways to use your policy while you’re still alive. Whether you choose to borrow against your policy, sell it, or use it for retirement income, it’s important to carefully consider your options and work with a financial advisor to make sure you’re making the best choice for your situation.