How to Benefit From Your Life Insurance Policy During Your Lifetime

Contributing to a life insurance policy does more than provide financial protection for your loved ones after you pass on. Life insurance policy holders may be able to gain benefits of life insurance while they're alive, in the form of living benefits, loans or access to cash value now. Here's how.

What Are "Life Insurance Living Benefits"?

Living benefits, sometimes known as "accelerated benefits,"¹ are life insurance benefits that may be paid out to some policy holders depending on their current health or life situations. Living benefits enable a portion of the benefits that would be paid out upon death to be paid while the policy holder is still alive.

Certain life insurance policy plans, like the Quality of Life Insurance suite of life insurance policy products, include living benefits at no additional charge. The QoL Accelerated Benefit Riders can pay out an advance on the death benefits to cover care costs, to compensate for missed income or for any other reason if the policy holder suffers a qualifying event that meets specific conditions.

Living benefits are sometimes automatically included in a policy, and sometimes they will need to be added to a policy as a rider. It all depends on the provider.

When Can You Use a Living Benefit for Life Insurance?

Typically, a qualifying event for living benefits such as a chronic illness, critical illness, or terminal illness must occur for living benefits to be paid out.

• Chronic illnesses are conditions that are suffered long-term, where normal daily life is disrupted. It is an illness or physical condition certified by a licensed healthcare practitioner confirming that the insured person is unable to perform at least two normal daily living activities, such as bathing or eating, without substantial assistance or supervision.
• Critical illnesses are sudden, life-changing or life-affecting illnesses that come without warning. These can include major heart attacks, major organ transplants, strokes, severe burns, and paralysis.
• Terminal illnesses are illnesses that a physician expects will result in the insured's death within two years.

Some life insurance policy living benefits may also be paid out when the insured requires long-term care, as well. Living benefits will vary depending on the insurer.

How to Access Your Life Insurance Policy's Cash Value

For permanent life insurance policy holders who want to access cash but don't qualify for living benefits, there may be options to access the policy's cash value while the insured is still alive. The cash value of a permanent life insurance policy like whole life insurance consists of cash savings built up from a portion of the premiums you've paid. Here are some ways to access it:

• Apply for a loan - If you need funds to pay for something in the here-and-now, like a mortgage or auto payment or to send your kid to college, you may be able to apply for a loan from the accumulated cash value of the policy. You won't have to pay back the money because it was yours to begin with, but any money you borrow and interest from the loan will be deducted from the death benefit.
• Make a cash withdrawal - Cash withdrawals from a life insurance policy are typically non-taxable and are limited up to the amount of premiums you've paid into the policy. Be aware that some policies will reduce the death benefit by an amount greater than what you withdraw.
• Surrender the policy - When you surrender a life insurance policy, you're cancelling it. This may be an option if you no longer want or need the policy. You'll get all the cash value of your policy, but the policy will not pay any death benefits. You may be charged surrender fees.

Be aware that cash value options do not exist for term life insurance, because it does not have cash value. If you want term life insurance but still want potential financial benefits while you're alive, look into term life insurance options like Quality of Life Insurance products that have built-in living benefits.

Be In the Know as You Use Policy Benefits

Enhancing your quality of life while you're alive is important. But it's vital to be aware of how using your life insurance policy while you're alive will affect your loved ones. If you purchased a life insurance policy to protect those you love when you pass on, accessing your policy benefits now may decrease the amount of the death benefits paid out to beneficiaries.

It's also important to know that living benefits payments received are typically not subject to federal income tax.² However, some states allow for the taxation of living benefits. You'll want to check with your insurance provider about how using living benefits may affect your state tax payments.

Life Insurance for the Future and for Current Needs

Benefits of life insurance do not have to be limited to being used only after you die. Life events change, and what you've paid toward your life insurance policy premium may be accessible while you're still alive. Remember:

• If you get a term life insurance policy that has living benefits, like Quality of Life...Insurance, you may be eligible for living benefits coverage if you qualify because of a certain life event.
• If you opt for a permanent life insurance policy like whole life insurance, you have options to access the cash value of your plan while you're still alive.

Life is unpredictable. Insuring your life for the unexpected now can provide financial protection for you and your family. Contact AIG Direct for a life insurance policy that works for you.