When people hear “life insurance,” they usually think about one thing: a payout to their family after they die.
That is certainly its main purpose. A life insurance policy can provide a death benefit to the people you name as beneficiaries if you die while the policy is active.
But some types of life insurance can also offer benefits while you are still alive. This depends on the policy you buy and its terms.
Some Policies Build Cash Value
Term life insurance generally provides protection for a specific period and does not build cash value.
Permanent policies, such as whole life and some forms of universal life insurance, can build cash value over time. This value belongs to the policy and may be available to you while you are alive.
Depending on the policy, you may be able to borrow against the cash value or withdraw part of it. You may also be able to surrender the policy and receive its cash surrender value.
These options come with important conditions. Loans and withdrawals can reduce the policy’s cash value or death benefit. Surrendering a policy can also have financial and tax consequences.
Some Policies Offer Living Benefits
Certain life insurance policies include accelerated death benefits. These may allow a policyholder to receive part of the death benefit while still alive if they meet specific conditions, such as having a qualifying terminal or chronic illness.
For someone facing a serious health problem, access to part of the policy benefit can help with financial needs.
Not every policy includes this feature, so it is important to check the contract.
Life Insurance Can Support Financial Planning
Permanent life insurance may also become one part of a broader financial plan because of its cash value feature. However, it should not automatically be treated as a replacement for savings or retirement accounts.
The costs, policy terms, fees, and possible tax effects all need to be understood first.
The Bottom Line
Life insurance is primarily about protecting your loved ones financially. However, some policies can also provide financial options during your lifetime.
The important thing is to know what your policy actually offers. Look beyond the death benefit and understand the cash value, living benefits, costs, and rules attached to the policy.
That way, you know what you are paying for and how the policy may fit into your overall financial plan.