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. While this is the main reason that most opt for life insurance there are 5 other major reasons that some one could utilize a whole life insurance policy.
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. 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 for emergency.
Unlike sending a kid to college or starting a business, you can’t control the timing of some things, such as 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). Due to the safety net provided by your life insurance policy, you might be able to take a more aggressive allocation strategy in your 401K investments. Also, you can tap into the cash value of your insurance policy to cover those first few years of retirement, so you can let the funds in your 401(k) grow much longer.
These a not all the things you can do and some ideas aren’t right for everyone. I mention them here to illustrate some of the ways other people have made use of the living benefits of their life insurance. The best way to know your options and which plan of action to take is always to speak with your professional insurance agent or financial advisor.