Most people think life insurance only comes into play after the policyholder passes away, but it's also possible to benefit from it while you're still alive. From loans to long-term care and more, life insurance policies (particularly permanent life insurance policies) can help you beyond the death benefit.
If you already have a term life insurance policy, it may be possible to convert it to a permanent life insurance policy — check with your insurer to see what options are available to you.
If you're shopping for a policy that can provide these possible perks, you might want to consider one of CNBC Select's top life insurance picks. For whole life insurance, MassMutual stands out with a number of policies to choose from and a strong record of dividends. Pacific Life stands out for universal life insurance with flexible, specialized products that can help you do things like supplement retirement income.
MassMutual Life Insurance
Cost
The best way to estimate your costs is to request a quote
App available
Yes
Policy highlights
MassMutual has been in business for over 170 years, and carries the highest ratings for financial security from AM Best.
Pros
- Offers a number of policies to choose from
Cons
- No online quotes available
- Policies must be purchased through a financial professional
Pacific Life Life Insurance
Cost
The best way to estimate your costs is to request a quote
App available
No
Policy highlights
Pacific Life offers permanent life insurance policies in addition to term insurance. A number of riders make it possible to customize the policy to fit your needs.
Pros
- Offers specialized products that tailor the coverage to your needs
Cons
- Must be purchased through an advisor
- No online quotes available
Here are several ways you can use your life insurance while you're still alive.
Pay your premiums with cash value
A permanent life insurance policy builds cash value as you pay your premiums, and that value in turn earns interest. This cash value is separate from the death benefit and you can access this money while you're still alive. In fact, the cash value returns to the insurer after you die so you want to use it before you lose it.
One way people spend this cash is by paying their premiums. Since you'll likely be paying for life insurance premiums into retirement, this frees up more retirement income for your daily life and expenses. Given your retirement budget may be more limited than it was while you were earning an income, taking the expense of life insurance premiums off your plate could come as welcome relief.
Use cash value for a loan
If you need a loan, your permanent life insurance policy's cash value can come in handy. When you borrow from your cash value, you borrow the money from your life insurance company with your policy as collateral. The loan generally doesn't require a credit check, and interest rates could be more favorable than from a personal loan.
It sounds like an ideal way to get a loan but it could lead to you losing your policy if you're not careful. For example, if the interest you owe grows larger than the cash value, the policy could lapse. And, if you decide not to pay the loan balance, interest, and fees (or die before you get the chance), it could reduce the amount your beneficiaries receive from the death benefit when you expire.
While it's a way to get money in a pinch, you should have a plan in place to pay it back if you want to keep your policy in force. If you think a personal loan better fits your financial needs, CNBC Select ranks LightStream, the online lending arm of Truist Bank, as one of the best providers on the market thanks to its low interest rates and flexible terms.
LightStream Personal Loans
Annual Percentage Rate (APR)
7.49% - 25.99%* APR with AutoPay
Loan purpose
Debt consolidation, home improvement, auto financing, medical expenses, and others
Loan amounts
$5,000 to $100,000
Terms
24 to 144 months* dependent on loan purpose
Credit needed
Good
Origination fee
None
Early payoff penalty
None
Late fee
None
Terms apply. *AutoPay discount is only available prior to loan funding. Rates without AutoPay are 0.50% points higher. Excellent credit required for lowest rate. Rates vary by loan purpose.
Tap your life insurance for long-term care expenses
According to 2020 data from the Department of Health and Human Services, about 70% of 65-year-olds will need long-term care services (such as in-home care or assisted living facilities) during their lifetime. Depending on the type of care and where you live, this can cost thousands of dollars a month.
Adding a long-term care insurance rider to your life insurance could help cover these costs, and prevent your family from paying out of pocket. While long-term care insurance is available as a separate policy, it's generally also available as an add-on to your life insurance policy. This rider can help you pay for care up to a certain amount each month, and up to a certain limit determined by your policy.
Cover care for a terminal illness
If you're diagnosed with a terminal illness and your policy includes an accelerated death benefit rider, your life insurance could help cover some of the medical costs. You also could receive a portion of your death benefit while you're still alive.
In order to use this rider, you'll need to be diagnosed with a qualifying terminal illness according to your policy. Using your benefits through an accelerated death benefit rider will likely reduce the amount of money your beneficiaries receive when you die. But it could be helpful for you to make the most of your time and cover related expenses while you're still living.
Bottom line
Life insurance is mainly in place to help cover expenses and help your family when you die. But, in certain situations, permanent life insurance policies could help you cover expenses, access cash, and care for yourself.
