Life insurance can be a tough topic to discuss – for LGBTQ people and everyone else. After all, the subject inherently requires facing own deaths, and who really wants to think about dying? Eventually though, we all need to be adults and deal with that reality. On a positive note, there are numerous benefits to life insurance while you’re still living. Let’s consider what life insurance is, how it works, what policies are available, and how to best use those benefits while you’re still around.
What is life insurance?
Life insurance is a planning tool designed to protect the financial future of your beneficiaries after you die or are otherwise unable to provide for them due to unexpected illness or disability. Essentially you agree to make regular payments to your insurer while you’re able, and your insurer agrees to pay out a set amount to your beneficiaries in the event of your death. With adequate coverage, your loved ones will have enough to cover any outstanding debts you leave behind, pay for your funeral or burial expenses, and (depending on the size of your policy) receive help maintaining their standard of living. However, even if you are an LGBTQ person without a partner or dependents who’d need support, certain kinds of life insurance may still be beneficial to you.
What are my life insurance options?
There are three main types of life insurance to choose from, which may be available bundled or purchased separately:
- Traditional Life Insurance provides a lump sum benefit following the death of the policyholder.
- Critical illness insurance provides a lump sum payment if the insured person suffers a serious illness or injury that is covered under the terms of the policy.
- Disability provides a lump sum benefit payment if the insured becomes permanently disabled and is unable to work.
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How much should life insurance cost?
Costs vary greatly based on the level of risk a provider or insurer considers you to be. Ultimately, this risk is reflected in the premium you pay, which weighs such factors as: your age; how much you smoke or drink; your previous and current health; your occupation and your gender.
While the main purpose of life insurance is to provide a death benefit that supports loved ones, that doesn’t mean you can’t also take advantage of these benefits while you’re still alive. Here are a few ways:
- Tap into its cash value. Life insurance comes in two basic forms: term life and permanent life. Term life insurance is the less-expensive option and will pay out a death benefit should a policyholder die while the plan is in effect. Permanent life is more expensive, but it has an investment component that allows policies to build a cash value over time. Permanent life insurance can be an attractive choice for those who want coverage and to have a ready source of money that can be used for any reason. People can tap into a plan’s cash value in one of three ways:
- Loans: Rules may differ by company, but most allow people to take out a loan from the accumulated cash value for any reason. There is no set repayment schedule for these loans, but they will accumulate interest charges that can reduce the death benefit.
- Withdrawals: Policyholders can withdraw money from the cash value and not worry about interest charges. However, a withdrawal may change policy premiums and could affect the death benefit.
- Surrender: Surrendering a policy means canceling it. That releases all the cash value to the policyholder. However, a person should be sure he or she either doesn’t need the coverage or can get coverage elsewhere before taking this step.
- Apply for living benefits. Living benefits are another way to tap into the value of a life insurance policy while you are still alive. These benefits typically allow a portion of the death benefit – usually up to 50 percent – to be paid in advance should certain criteria be met. These accelerated benefits are most commonly available in the following forms:
- Chronic illness benefits: A chronic illness is often defined as needing assistance with at least two out of six activities of daily living, such as bathing, dressing or eating.
- Terminal illness benefits: Those who have been certified as terminally ill by a physician and have a life expectancy of fewer than 12 months may also be able to access living benefits.
- Long-term care benefits: Long-term care benefits may be available at an added cost.
- Sell the policy. Life settlements offer a final option for those who want to access money from their life insurance policy prior to death. These settlements may pay a lump sum or provide an annuity that offers regular periodic payments. Policies are typically purchased by investors on the secondary market for an amount that is more than the cash value but far less than the full value of the policy. The new owner takes over premium payments and becomes the beneficiary of the death benefits.
Depending how you use it, life insurance can be much more than just a death benefit that ends up in someone else’s hands. And, appropriate to its name, it can help ensure both quality and financial stability in your life.
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Last modified: July 2, 2019