Q:Question I always thought life insurance was simply something I could leave to others after my death, but I recently learned there may be more to it. Can life insurance help me financially while I’m still alive?

We asked Curtis Corrado, a Farmers Insurance^® agent in Centennial, Colorado, to explain how life insurance can benefit you during your lifetime.

A:Answer There are two main types of life insurance: term and permanent. Term life insurance covers you for a set amount of time — for example 20 years — with level premiums. Permanent life insurance (including products like whole life insurance) stays in force throughout your lifetime.⁴

Both term and permanent life insurance offer “riders” that could potentially provide payments while you’re alive. (Riders are additional options or benefits that allow you to customize your policy.) For example, you could purchase a chronic illness rider, which may pay a benefit if a covered illness limits your day-to-day abilities. A terminal illness rider could also allow you to access a portion of the policy’s death benefit before you pass if you meet certain conditions. These issues aren’t always pleasant to think about, but you should be aware of your options.

If you choose permanent life insurance, there are several so-called living benefits available to you.  In some types of policies, for example, premium payments above the cost of insurance can accumulate as a cash value and grow,  generally income tax deferred. You can borrow from this account — again, generally income tax free⁵ — for personal expenses, whether it’s for a new roof or long-term healthcare. The accumulated cash value can also be used to pay your premium for a period of time. It depends on how you want your policy to work for you.

Your Farmers agent can help you understand your options  for how to fund and structure a life insurance policy so it aligns with your goals. A little planning now can go a long way toward a gentle landing in the future.

1. “NAIC WORD OF THE WEEK - LIVING BENEFITS RIDER” 
   
   
2. Farmers^® companies, employees, agents, and representatives do not provide legal or tax advice. In general, partial or full surrenders from a permanent life insurance policy in excess of the policy’s basis are taxable. Limited circumstances exist where death proceeds will be taxable. This material has been prepared for general informational purposes only, and is not intended to provide and should not be relied on for tax, legal or financial advice. Because each individual’s situation is different, specific advice should be tailored to your particular circumstances; you should always consult your own tax, legal and other advisors before engaging in any transaction. This material reflects our general understanding of current law as of the date hereof, but tax laws and IRS administrative positions may change. This material is not intended to and cannot be used to avoid any Internal Revenue Service penalties. We specifically disclaim any liability resulting from the use or application of information contained in this publication.
   
   
3. Cash values may be accessible through policy loans. Policy loans that are not repaid and partial surrenders will reduce cash surrender value and death benefit. Policy loans are subject to interest charges. If your policy is a modified endowment contract, loans and surrenders may incur taxes and penalties.
   
   
4. Lifetime coverage (or life of the policy) is guaranteed as long as all premiums are paid to keep the policy in force.
   
   
5. Distributions from a life insurance policy in the character of partial or full surrenders up to basis or policy loans will generally be income tax free, provided the policy does not violate Modified Endowment Contract (MEC) guidelines and the policy is not terminated during the lifetime of the insured.  MEC guidelines are rules in the Internal Revenue Code which specify maximum premiums that can be paid without triggering adverse tax consequences for surrenders. A policy termination during the life of the insured can cause the owner a single taxable event for any gains in the policy that were borrowed or withdrawn on or before the termination date.

Written by

Curtis Corrado

The information contained in this page is provided for general informational purposes only. The information is provided by Farmers^® and while we endeavor to keep the information up to date and correct, we make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability or availability with respect to this article or the information, products, services or related graphics, if any, contained in this article for any purpose. The information is not meant as professional or expert advice, and any reliance you place on such information is therefore strictly at your own risk.

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