There are drawbacks, including some complex IRS rules that could trip you up if you aren’t working with a specialist. I’m building this strategy into my own personal retirement plan. Some policyholders may even find it makes sense to use their life insurance to help supplement their other retirement income streams. This could reduce the initial death benefit, but this is why you have living benefits! The borrowed money plus cost gets paid back at death. Unlike the home equity loan, your insurance policy loans may earn interest for the remaining years of the life policy, even after the loan fee. If you borrow your equity, it’s not a taxable event. This works very much like a home equity loan. Keep in mind that usually the most efficient way to take tax-free income is to do it as a policy loan. And withdrawals may also be tax-free - unless you take out more than you’ve paid into your policy. If you borrow the money, you’ll get it tax-free, though you will pay interest. What Is Indexed Universal Life Insurance and How Does It Work? People may get intimidated by the term “loan,” but this can be a handy option if you suddenly need money to pay for an emergency expense, for example a home repair or temporary job loss. And if you accumulate enough in cash value, it may be possible to take a loan against or withdrawal from that amount. When you buy a permanent life insurance policy, such as universal or whole life insurance, or a hybrid, like an indexed universal life policy, or IUL, a portion of your premiums goes into a separate account that builds cash value. As the policy owner, if you or your loved one becomes ill, those living benefits may make a major difference in your coverage. I can tell you, though, that based on my personal experience, signing up for living benefits, also known as accelerated death benefits or terminal and/or chronic illness benefits, could be a game-changer for you and your family. Online research may likely navigate you to articles that warn against using a life insurance policy for anything other than the death benefits. Using living benefits to help cover health care costs A person should have a cash-value life insurance policy, rather than rent a term policy for 10, 20 or 30 years. For example, if a person is renting a home, it is in their best interest to own a home as soon as they are able because they build and own the equity on their home. The popular mantra is “buy term and invest the difference!” There are times when this is absolutely necessary. There is no gatekeeper, since this is part of the policy’s benefits. They must qualify medically, and usually it can be the policyholder’s own physician who gives a certifying letter to qualify for benefits. The policy owner can access some or all of the life insurance policy’s death benefit, regardless of the cash value. A policy with “living benefits” can provide the policy owner financial support, for example, if long-term care is needed due to a diagnosis of a terminal or chronic illness. Some life insurance policies also offer benefits that can be used while the policy owner is living.
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