Life insurance with living benefits is what the industry refers to as the “new type of life insurance”. New life insurance offers living benefits and old life insurance doesn’t.
Simply stated, living benefits in a life insurance policy, allows you to access a portion of your policy face amount, while you are still living, assuming you meet the life insurance company’s qualifications.
Consider the hypothetical scenarios below and then ask yourself which makes sense.
The old type or the new type of life insurance:
Abigail is current paying $150/month into her indexed universal life insurance policy. The policy is growing at an average of 5-7% per year and performing well. Should she pass away, her family will have $500,000 of tax-free inheritance, which is the traditional way people use life insurance – upon death. Should she need to access the cash value in retirement, she will have approximately $30,000/year for 20 years, available tax-free.
But, what happens if she has a stroke? Or gets diagnosed with MS or Parkinson’s?
Her family will have to use their savings to cover the costs of at-home health care or a long-term care facility, causing untold stress on their income and/or lifestyle.
Indexed Universal Life Insurance. Scenario - B (NEW TYPE)
Braxton is currently paying $170/month for an indexed universal life policy that is growing at an average of 5-7% and performing well. He too will have the $500,000 death benefit and roughly $30,000/year income stream in retirement. Same as above, but here’s where things are different.
If Braxton is diagnosed with a condition or suffers a critical illness such as a heart attack or stroke, he will be able to take 2% of the death benefit (2% of $500,000) which equals $10,000 per month to cover the costs of at-home health care or long-term care.
In this scenario, the policy death benefit is used to offset or cover the costs of treatment vs. forcing the family to pay out of pocket from their savings.
Some policies even allow clients to accelerate the policy death benefit up to $2,000,000.
Does it make sense to purchase a long-term care policy for hundreds of dollars a month when you can simply upgrade your life insurance for a fraction of the cost (assuming you can qualify)?
Using life insurance with living benefits is an efficient way to solve long-term care planning without having to commit to the high premiums that often come with an LTC policy. Plus, if you are already using indexed universal life insurance as a retirement savings alternative, you might as well let it work double duty.
We strongly believe every person who already has life insurance should be replacing their old policies with the new type that includes living benefits.
Using Indexed Universal Life Insurance with Children.
Indexed universal life insurance is a great way to start a savings account for children as young as 2 weeks old.
Due to the tax-free benefits the IRS has allowed permanent life insurance to offer, it’s important to consider the impact it can have when the cost of insurance is at its lowest.
This means that you can put more premium dollars allocated to growth than death benefit.
The hypothetical example below shows how a policy started on an infant at $100 / month turns into $1,400,000 in cash value at age 66.
If you knew you could potentially create $1,400,000 in retirement savings by simply putting away $100/month, why wouldn’t you?
This is a prime example of how permanent life insurance can make a difference in your family for many generations to come, not just upon death.