Life insurance is usually straightforward: Pay your premiums and your beneficiaries get the benefit when you die. But life insurance also can be used in ways you may not expect:
1. Life insurance could come to the rescue if you have a terminal illness.
If you are diagnosed with a terminal illness, you may be able to tap into your policy benefits right away to help pay for medical bills or other immediate expenses. These "accelerated death benefits," also called "living benefits," may have been automatically included in your policy, or you may want to add them as a rider. Contact your insurance agent to see whether you have this option.
2. You may be able to convert your term life or group life policy to a permanent life insurance policy.
Most term life and group life policies allow you to convert your policy into an individual permanent life insurance policy, without undergoing an additional medical exam. (You'll pay higher premiums for the permanent life policy.) This can be invaluable if you are diagnosed with a severe medical condition and you want to ensure continued life insurance coverage when your term policy runs out, or if you leave your job and lose your group life benefits.
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In a time of financial crisis when you need cash, you may think first of emptying your savings account, cashing in your stocks, taking out loans and even gutting your 401(k). Cash value that has built up within a permanent policy might be easily forgotten. Yet cash value's purpose is to come to the rescue in these moments.
"Where else can you go to borrow money where there's no collateral required and no proof of income needed?" says Jack Dewald, a life insurance agent and the board chairman of the Life and Health Insurance Foundation for Education. "Your life insurance policy can be a lifeline to you for cash and loans, especially in a down economic time. For example, you use cash value in life insurance before your house gets foreclosed."
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Many life insurance companies are inventing policies that can be used in a number of ways depending on your situation. Growing in popularity is the long-term-care rider, which you may have added at the time you bought your policy. (If you didn't, see "No long-term-care insurance? Uh-oh.") Long-term-care riders allow you to take immediate payouts to pay for your assisted-living facility or nursing home. Your death benefit is reduced by the amount you take out.
Continued: If you can't pay your premiums
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