The main reason for buying life insurance is to make sure that your loved ones are financially secure in the event of your death, but permanent life insurance also can provide you with living benefits.
Since the cash value of a permanent life insurance policy grows income tax deferred, it can be used to provide an income stream during retirement or to help meet other long-term financial goals, such as funding college education for a child or grandchild.
The guaranteed accessibility to the cash value makes permanent life insurance one of the most valuable assets people can own. But the tax impact can make some options more valuable than others.
Here’s a quick comparison of several living benefit options:
- Surrender the policy. Instead of a death benefit, you will receive the cash value of the policy. As a general rule, when policy values are surrendered, the amount received is not taxed until it exceeds the amount paid in premiums, and income tax is due only on the gain.
- Change the policy to paid-up. By selecting this option, no further premiums will be due, and the entire dividend offered by the company can be received in cash each year.
- Exchange the policy for a payment plan. This option would provide you with a stream of income for your lifetime. The rate paid out would depend on how long you have owned the policy and the amount of total premiums you have paid.
- Keep the policy. If you continue to pay the premiums in cash, you will accumulate the largest death benefit and cash value. Even if the company didn’t pay any future dividends, the cash value would continue to grow.
You don’t have to die to receive benefits from your permanent life insurance policy. With its flexibility, permanent life insurance provides you with many options during your lifetime.
*The policy dividend and the underlying dividend interest rate are not guaranteed. They are reviewed annually and are subject to change by the Company’s Board of Trustees. The dividend interest rate credits interest on policy values after mortality and expense charges have been deducted. It is not a measure of a policy’s internal rate of return on cash values.