Life insurance policies cover families and other beneficiaries when the policyholder passes away. People often purchase these policies when they are younger and pay premiums for decades before they need the benefits.
Sometimes, however, you may need the proceeds of your life insurance policy while you are still alive. As much as you want to leave the money to the beneficiaries, you may have expenses that you need to pay to fund medical care and keep you financially afloat.
Everything depends on the life insurance policy that you have and the benefits it offers.
You can claim some life insurance proceeds while you are still alive, and while you cannot receive the entire death benefit, you may get some money to help ease your financial situation.
If your life insurance company is making it difficult to receive rightful benefits, either while you are alive or for a loved one’s policy, you can consult a life insurance claims attorney about your claim and policy options.
You May Need the Money While You Are Still Alive
You may find that your health coverage needs have spiraled beyond what your budget can cover. You still have your own copayments and cost share for medical care.
At the same time, you need to keep paying your expenses, which can become more difficult if you are suffering from a terminal illness. Then, you may have little to no money coming in while you need to pay high expenses.
Deciding to use some of your life insurance while still living is never easy because you are weighing competing factors, not the least of which is the need to pay your bills.
You also need to determine whether you have a policy that will allow you to draw money in some form while you are still alive. You are trying to balance your own current needs with what your future beneficiaries may need. Discuss the best course of action with a life insurance lawyer before taking significant action.
It Is Easiest to Use Money from a Permanent Life Insurance Policy
The most common way to claim life insurance before you die is through a permanent policy, which is permanent life insurance that serves multiple purposes. The first purpose is to provide a death benefit for your family, and this policy can also act as a savings and investment account for you over the years.
You can purchase several different types of permanent life insurance policies:
- Universal life insurance – Your life insurance policy combines a death benefit and cash value. You earn interest on your policy’s cash value, which becomes a wealth-building mechanism you can use when needed.
- Whole life insurance – Estate planning receives a fixed death benefit, and your cash value will grow at a set rate over time. Your premiums will never change, regardless of the performance of your investments.
- Variable universal life – You can invest your premiums in specific financial instruments. You can lose money on your premiums, depending on the performance of your investments. However, strong stock market performance can also lead to investment gains in your cash value. You can vary the premiums that you pay over time.
- Variable whole life – You can invest your premiums in the market. You will have fixed premiums and a fixed death benefit and can earn money over time through dividends or investment performance.
The type of policy might affect your options regarding early benefits.
Permanent Life Insurance Policies Cost Much More
Permanent life insurance policies will have much higher premium payments than term ones. You are building assets and cash value along the way, so it follows that you will need to pay more for coverage.
Permanent life insurance policies are not necessarily suitable for everyone, and some people cannot afford them. The broker must perform a suitability analysis before selling you this policy.
The Cash Value of a Permanent Life Insurance Policy Is Yours
The advantage of a permanent life insurance policy is that you have a cash value that builds up over time. You can borrow against your policy and may even withdraw the cash value. If you have enough cash value accumulated, it will not even affect the death benefit that your family receives.
The cash value is a separate component of your life insurance policy. Assuming you have paid enough premiums, it differs from the death benefit because it is yours to do with as you like when you are still living. You absolutely should use the cash value while you are still alive because once you die, it will revert to the insurance company.
It is common for people to use their cash value to pay for long-term care while they are still alive, and you may even have added a long-term care rider to your permanent life insurance policy.
You do not need approval to use the cash value as you like. It is your money accumulated over time, and if you choose to withdraw it to supplement your income or pay for your medical expenses, you may.
Your permanent insurance policy may also have an illness benefit. If you suffer from a qualifying illness, you can receive a payment to help with your expenses.
You May Even Get Money from a Term Life Insurance Policy
Most people think that you cannot get any money before you die from a term life insurance policy, and usually, that is true. Term life insurance does not build any cash value. You make payments for coverage that lasts a specified period.
The advantage of a term policy is that the premiums are lower. You can purchase any amount of coverage, whether to pay for burial expenses or support your family.
Term life insurance allows practically anyone to afford coverage, giving you the peace of mind that your family will be protected if something happens to you. The worst mistake you can make is not having insurance coverage.
Accelerated Death Benefit Riders in a Term Life Insurance Policy
You can purchase an accelerated death benefit rider to add to your term life insurance policy, and some life insurance companies may even include this rider in your policy at no extra charge. This benefit allows you to access the death benefit from your policy while you are still alive, but you will need a terminal illness to draw from it.
Each policy has different rules for when you may qualify to use the death benefits when you are alive. Typically, the insurance company will review your medical records and decide how much of your policy you can use now based on the severity of your medical condition.
The amount you use now will come from the death benefits, and you do not have to use all available funds. Any remaining coverage will go to your beneficiaries as the death benefit.
You must purchase the accelerated death benefit rider when the policy begins because you cannot add it later when you need it. This concept is relatively new, so some life insurance companies may not offer this rider.
Generally, spending a little extra for the accelerated death benefit rider is a good idea.
Treat Viatical Settlements With Caution
The one thing that you should be very careful of is the viatical settlement industry. A viatical settlement refers to the sale of a life insurance policy by a terminally ill or chronically ill individual to a third party.
In this arrangement, the policyholder receives a lump sum payment, typically less than the face value of the policy, in exchange for transferring the death benefit to the buyer.
Viatical settlements provide individuals facing severe health conditions with financial flexibility, allowing them to address immediate needs rather than waiting for the policy’s death benefit.
There are certainly third parties who are in business to buy life insurance policies from people who are still alive. They will give you a fixed sum of money now, and you will sign the policy benefit over to them. Meanwhile, the buyer of your policy will pay all future premiums.
The amount of money that you may get from a viatical settlement reflects:
- Your life expectancy at the time you sell your policy
- Your health condition
- The type of policy you have
- The amount of the death benefit
In essence, the policy buyer bets on when you may die and reviews your medical record and situation to determine what price they need to pay you to make money. It is in their interests for you to die sooner rather than later so they can get their money and no longer have to pay premiums.
Viatical settlements are a growing market but are not necessarily suitable for people selling their policies. The people buying your life insurance policy are companies and hedge funds in business to make money and are most likely paying you less than you should get because they know that you need cash now.
While some people find that life settlements work for them, you must be extremely careful if you choose this route. The industry has many abuses, where sophisticated companies have taken advantage of people in desperate financial circumstances when they sold their policies.
If you have to get a viatical settlement, do your research and get legal advice. Always speak with several providers to get a competitive price.
You Should Periodically Review Your Life Insurance Coverage
You will decide on the correct type of insurance based on your needs and ability to afford the policy. You must have some kind of life insurance coverage to provide for your family when you are no longer here.
Consider your circumstances when you purchase the policy, and it is vital to review your policies every so often to ensure that they still reflect your needs. Sit down with a life insurance agent to understand what can benefit you now. See if you can make changes in coverage while you are still relatively healthy.
However, if your health deteriorates, insurance companies will not write new policies or allow you to change existing ones.
Insurance Companies May Not Always Fulfill the Terms of Your Policy
Sometimes, the insurance company you have trusted does not make good on what they have promised. The insurance policy is a contract between you and the insurance company, and must cover you based on the policy’s language. Still, the insurance company may refuse to pay the death benefit or the living benefits.
Then, you may need to file a lawsuit against the insurance company to have a court force it to pay. You can hold insurance companies accountable when they wrongfully make your life more difficult by delaying payment or refusing to pay at all.
If the circumstances are egregious enough, you may even file a bad faith lawsuit, where the insurance company will have to pay you damages for wrongful conduct.
You Need a Life Insurance Claims Lawyer to Help You Deal With the Insurance Company
If you need to use your life insurance policy while still alive, dealing with a difficult insurance company is the last thing you want.
Hire an experienced life insurance claims attorney to stand up for your rights and take legal action when necessary. The attorney will not ask for any money upfront, so you can let the attorney handle the details of your case while you tend to what is important.
You have no financial risk when you hire an attorney to fight the insurance company and get the money you need.