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Benefiting from Living Benefits from Life Insurance During Life

Life Insurance Living Benefits Can Be Used While Alive (What You Need To Know)

Life insurance is straightforward: purchase a policy and regularly pay the premium to keep it active. Upon the policyholder’s death, their beneficiaries receive the full amount of their “death benefits.”

Despite being one of the pillars of personal finance, not everyone is convinced that they need life insurance. As an insurance agent, you might’ve encountered a customer or two with the same beliefs.

Agents are no strangers to people who are wary of life insurance because they think it’s too complex or time-consuming. There are also clients who are uncomfortable with discussing the topic of their demise. Some people don’t consider life insurance as an asset and just see it as a monthly bill they have to pay but will never personally benefit from.

On the contrary, life insurance is more than just a death benefit, which is what you want potential and current clients to understand. They need to know about the living benefits so they’ll recognize their need for life insurance.

By educating them on their insurance policy’s living benefits, as well as other available options, you’ll help them see the bigger picture of how they can benefit from it while they’re still alive.

Here are some of the topics you need to discuss.

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Term Life Insurance Offers FEW Living Benefits

Term life policies offer some living benefits that pay policyholders while they’re still alive. To benefit from these, however, they’ll need to purchase a policy with one or more riders­ an amendment or attachment to an insurance policy that pays for its coverage or adds coverages for an additional cost.

Some riders available for term insurance holders interested in taking advantage of their living benefits include the following:

  • Permanent & Partial Disability. The insurance amendment becomes useful if the policyholder suffers permanent or partial disability due to an accident. In a circumstance such as this, most insurance companies will provide a regular payout for the next five to 10 years. This rider will only apply to disabilities caused by an accident.
  • Critical Illness. Policyholders will receive a lump sum of the amount if their illness is mentioned or pre-specified in their policy. Critical Illness drivers usually cover all major illnesses, such as cancer, heart attacks, coronary artery bypass graft surgery, paralysis, and kidney failure. After the detection of the illness, the policy will either continue or end, depending on the amount they pay.
  • Waiver of Premium. This provision allows policyholders not to pay premiums during a period of disability. Under the waiver of premium amendment, the insurance carrier will wave premium payments for the policyholder.

Permanent Life Insurance: An Abundance of Living Benefits

Living benefits are often associated with permanent life insurance policies. Insurances under this umbrella term allow policies to build cash value on a tax-deferred basis. Unlike term insurance, permanent policies will remain active as long as your client continues to pay their premiums.

Some life insurance buyers prefer term insurance because it costs less than permanent policies. The latter is more expensive because part of their premium will go towards building their policy’s cash value. In some cases, term premiums experience dramatic increases later in life so a permanent cash-value life insurance might be a more affordable option in the long run.

Permanent life insurance is a good fit for clients who:

  • Wish to use life insurance as a way to leave an inheritance
  • Want to access the policy’s investment component
  • Need insurance protection no matter when they die

Once your client decides to buy a policy, they’ll have to choose which type of permanent policy to purchase next. Their decision will depend on their preferred payment flexibility, as well as the risks involved with an investment. This is where you lay down their options so they can make an informed decision.

What Are Their Choices?

Whole Life Insurance

In addition to providing death benefits, whole life insurance also offers fixed premiums and a savings component (also known as the cash value) that accumulates cash over time on a tax-deferred basis.

The cash value offers living benefits by providing a source of equity for policyholders. To build more cash value, they must remit payments more than the scheduled premium. To gain access to their cash reserves, on the other hand, they’ll have to request a withdrawal of funds or a loan. They are also free to withdraw up to the value of total premiums paid, minus the tax.

Withdrawals will reduce the amount of their cash value but will not affect their death benefits, unless it is not paid back.

Variable Life Insurance

This life insurance product allows policyholders to put their cash value in investment accounts managed by the insurance company. Once the money is in the account, the company will add the money to their premiums or their death benefits — if their investments do well.

One of the attractive features of variable life insurance is its flexibility with cash value accumulation and premium remittance. Within the company’s limits, policyholders can adjust their premiums according to their investment goals and personal needs.

With a variable life insurance, they’re free to allocate their premiums among a variety of investment options that come with different degrees of rewards and risks: bonds, stocks, a combination of both, or a fixed account that guarantees principals and interest.

Universal Life Insurance ​​​​

Similar to term life insurance, universal life insurance comes with low premiums but with investment savings elements. It offers more flexibility compared to whole life insurance policies. Policyholders can skip some payments, but they must maintain a minimum level of premium payments over the year.

Universal life insurance policies have two components: the cash value and cost of insurance (COI) amount. The COI is the minimum amount policyholders must pay to keep the policy active. It includes the charges for policy administration, mortality, and other expenses that keep their insurance in force.

Variable Universal Life Insurance

Variable universal life insurance policies come with different sub-accounts that allow cash value investments. It also combines savings components with a separate death benefit to allow greater flexibility in policy management. Policyholders pay for their premiums at any time, as long as they stay within maximum and minimum rules.

Should an emergency occur and a policyholder is short on cash, he or she can skip the scheduled payment and let the cash value cover their policy’s expenses.

Selling Their Policy is Also an Option

Suggest a life insurance settlement as a final option for policyholders who want to access money from their policy before their death. It involves selling their policy to a third party less than its face value or death benefit. Once they sell the policy, the investor takes ownership of the policy and is responsible for paying the premiums.

In essence, they’re turning their policy into a financial asset that acts as an immediate source of income.


 

For Example: A policyholder has a life insurance policy that pays $1 million upon their death and has a cash surrender value of $100,000. An investor can pay $250,000 or more to buy their policy. After the settlement, the original policyholder receives the $250,000 now, and the third-party investor receives the $1 million upon their death, as the policy’s beneficiary.

Life settlement candidates are usually individuals aged 65 years or older and own policies with a face amount of at least $100,000. Younger policyholders can also qualify if they have certain medical conditions.

Policy owners who wish to maximize their policies shop around with assistance from a life settlement broker or get in touch with a potential provider immediately.

Life Settlement Considerations

Apart from listing down the advantages of selling their policies, make sure you also emphasize the potential drawbacks of this decision.

Life settlements come with tax implications. Policyholders with insurances that cost greater than the tax basis up to the cash surrender value’s amount must pay ordinary income rates. On the other hand, those with policies that are in excess of the cash value must pay capital gains.

The Revenue Ruling 2009-13 applied different tax basis calculations for people selling their insurance policies and those surrendering. The differences caused confusion regarding the amount of the tax basis, which resulted in questions of who pays capital gains or ordinary income rates.

The Tax Cuts and Jobs Act of 2017 simplified the tax basis calculation process. The calculation for both surrenders and settlements are now the same. Individuals selling their policies don’t have to reduce the taxable basis by the cumulative cost of insurance. The new laws, however, don’t make life insurance tax-free. Rather, these changes eliminate the confusion associated with life settlement, which can help them make a better financial decision.

Second, determining whether they’re getting a fair price for their policy will be a challenge. The life-settlement industry is prone to aggressive sales tactics. Sometimes, brokers charge unreasonably high commissions. For this reason, emphasize their need to work with a licensed insurance agent who prioritizes their best interests. In this case, it’s you.

Knowledge Gains Potential Client Trust

Information is the key to resolving a potential client’s misconceptions about life insurance and its benefits. Your goal is to help them look past the death benefits and point out other ways to maximize their policies while they’re still alive.

For some clients, however, verbal persuasion is not enough. They need to know that the party persuading them (aka the insurance agent) is authoritative, credible, and always after the client's best interests.

One way to gain their trust is to ensure them that you don’t just know what they need, but can also provide what they need.

This is where TR King Insurance Marketing becomes your best partner.

Trusted IMO/FMO Company at Your Service

Our insurance field marketing organization (IMO/FMO) has two goals: to make your job easier and help you become the best agent for your clients. We achieve these by offering a variety of services and opportunities to broaden your network of industry partners and clients.

When you partner with us, you will benefit from the following:

  • High level and top-rated insurance products. Clients will only say yes to your offer if it suits their needs. Give them plenty of options with our top-rated insurance products from national carriers. We have an extensive range of carriers for different types of insurance, such as Medicare Advantage Insurance, Medicare Supplement Insurance, hospital indemnity insurance, final expense insurance, and traditional life insurance.
  • On top of these, we give you the opportunity to partner with multiple carriers. You also benefit from more regional and national insurer and health plan options, which include highly ranked and brand name plans.
  • Simple and effective online contracting. Our SureLC software saves you time and cuts down on all the paperwork. It gets the ball rolling by increasing the speed and efficiency of the processing of your contracts.
  • Access to online training programs. Potential clients will most likely trust insurance agents who know what they’re selling. Be that agent by advancing your product knowledge with our training programs. Moreover, you’ll feel more confident in front of your clients with our Final Expense 101 training program, which you can get for free when you team up with us.
  • Dedicated Support. TR King Insurance Marketing also serves as your product and sales consultant. We cut out the market analytics and research of what products to offer your clients and helps you sell better. Our support team also handles new business issues, client mentoring, and commissions issues.

We also deliver the highest value to our agents by providing a representative to handle the following needs: marketing support, escalated beneficiary and broker issues, one-on-one consultations, and training, and technology-related concerns.

TR King Insurance Marketing knows the value of insurance agents. We raise the standards for IMO/FMOs by providing insurance products and services that meet the changing needs of our agents and their beneficiaries.  

Encourage more clients to say yes to your life insurance products with us. Join our rapidly growing team. Get in touch with us today.

Key Takeaways In This Article

  • Life insurance protection can be a solution for more than just a death benefit. Stay educated and make sure to look at ALL angles.
  • Help your client make the right choices by being there to educate them through the process.

Over to You

We'd love to hear your thoughts in the comments below on:

  1. How you ever sold an insurance policy for any other reason than the death benefit, if so, share your experience?
  2. Have you sold a policy just because of the living benefits it offers?

If you have any questions, please leave a comment below. We will carefully read each one of them. Happy Selling!

About the Author Matthew King

Matthew King is a co-owner of TR King Insurance Marketing and partner at Independent Life Insurance Agent Association. When he's not creating processes, content, and developing SEO strategies, he likes to immerse in gaming with his wife and friends.

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