7 Lesser Known Benefits that Life Insurance Can Offer

Last Updated: June 23, 2020

The most common reasons that people purchase life insurance include: paying for final expenses, providing income replacement, leaving an inheritance, and protecting a mortgage.

But did you know that life insurance can also be used to protect your business, pay medical bills, or allow you to enjoy your retirement savings guilt-free?

As an independent agency with access to more than 60 top-rated life insurance companies, we’ve helped thousands of clients with their life insurance needs, and some situations are more unique than others.

In this article, we’ll share our experiences and outlined 7 lesser-known benefits that life insurance can offer.

Quick Article Guide:

1. Pay Medical Bills if You Become Ill
2. Enjoy Retirement and Spend Your Savings Guilt-Free
3. Protect Your Business From an Unexpected Loss
4. Life Insurance for Business Owners
5. Secure a Small Business Loan
6. Reduce or Avoid Estate Taxes
7. Fund a College Education
8. Still Have Questions? We Can Help

1. Pay Medical Bills if You Become Illlife-insurance-to-pay-medical-bills

Many term life insurance policies automatically include a free benefit known as an accelerated death benefit, or ADB rider. If you are diagnosed with a terminal illness, an ADB rider will allow you to access a portion of your life insurance policy’s death benefit. This benefit allows you to control how some of the money from your life insurance is used while you’re still alive

Here’s How an Accelerated Death Benefit Works:

If your doctor diagnoses you with a terminal illness like cancer and your policy offers an accelerated death benefit, you’ll have an option to access up to 75% of your life insurance policy’s face amount or death benefit. Some companies even offer accelerated death benefits to people who become unable to perform four or more of the essential activities of daily living such as bathing, dressing, transferring, or toileting.

This money does not have to be paid back to the insurance company, regardless of the outcome of your illness. In addition, there are no restrictions on how the money can be used. You can pay off the mortgage, settle your medical bills, or take your family on the amazing vacation you have always dreamed about. Having this cash available will also allow you to take time off of work and focus on getting better.

The amount of money your policy’s accelerated death benefit allows you to access varies from company to company. However, most life insurance companies will allow you to access at least 50% of your policy’s death benefit, tax-free. If you pass away, your beneficiary or family will still receive the remainder of your life insurance policy’s benefit, minus the amount of money you collected from your ADB rider.

2. Enjoy Retirement and Spend Your Savings Guilt-Free

spend-your-retirement-savings-guilt-freeIf you are retired and want to leave money behind to your loved ones, purchasing a life insurance policy may be your best option. Instead of focusing on saving money each month, you can make affordable monthly payments for a “permanent” life insurance policy.

At Term Life Advice, we offer permanent and affordable life insurance policies that do not build cash value. These policies are often referred to as a term-to-90, term-to-95, or term-to-100, because your rates and coverage are guaranteed until the age of 90 or later. In addition, no risky investing is required you only pay for the cost of your insurance.

Real-Life Example of a Client We’ve Recently Helped:

A few months ago we worked with a client named John who is 67 and recently retired. He has two young grandchildren and he wants to leave $50,000 to each of them when he passes away. John doesn’t expect to live past the age of 90 because most of the men in his family pass away in their eighties. If John started saving money today, he would have to set aside at least $362 each month to save $100,000 by the time he reaches his 90th birthday.

John takes medications to control his cholesterol and blood pressure, but overall, he’s in great health. After shopping 63 A-rated companies, we matched John with an affordable life insurance policy that offers fixed rates and level coverage until the age of 95.

John was approved at the second-best health class available, also known as a “preferred” rate class, for $186.73 per month. By purchasing a life insurance policy instead of putting aside his money each month, John will have an extra $2,100 each year to enjoy his retirement.

Buyer Beware: If you are buying a life insurance policy for final expenses or to freely spend your retirement, make sure you avoid a traditional term life insurance policy. Most term life insurance policies will expire by the time you reach the age of 80, but according to the Social Security website, a 65-year-old female’s lifetime expectancy is 86.6 years while a 65-year-old male’s is 84.3. For this reason, we recommend locking in your policy until age 90 or later, depending on your family history of longevity.

Before deciding how long to guarantee your coverage, you may also want to view the lifetime expectancy calculator on the Social Security website. At Term Life Advice, we offer permanent life insurance options from dozens of A+ rated life insurance companies allowing use to match our clients with the best options available. Depending on your needs we can offer a policy with guaranteed coverage and level rates until age 90, 95, 100, 105, 110, or 120.

3. Protect Your Business From an Unexpected Lossbenefits-that-life-insurance-can-offer-business-owners

Life insurance is commonly purchased to protect a business if they were to lose a key executive or employee. This is also referred to as “key-person” insurance. Most businesses have a few employees or executives that are vital to their business’s day-to-day operations and profitability. If something unexpectedly happened to one of these employees, the business would suffer a financial hardship and lose revenue until the employee was replaced.

To help lessen the impact from an unexpected loss, businesses often purchase key-person, or key man, life insurance. With key-person life insurance, the business owns the life insurance policies and they are also responsible for making the payments. If an insured executive or key employee passes away, the death benefit from the life insurance policy can be used to hire and train a replacement.

Insurance companies do not have restrictions on how the business needs to use the death benefit from the life insurance coverage, but they will limit the amount of coverage available on each employee. As a general rule of thumb, most life insurance companies will limit the amount of coverage available for each key employee to ten times the employee’s annual compensation before taxes.

4. Life Insurance for Business Owners

lesser-known-benefits-of-life-insuranceIf you’re a business owner with one or more partners, you may want to consider purchasing life insurance to fund a Buy-Sell Agreement. Many businesses are forced to shut their doors or sell off assets in the event of a business owner passing away. A Buy-Sell Agreement provides the business with an influx of cash to buy-out a deceased owner’s share of the business from their surviving family. This also prevents the owner’s family from getting involved with the business.

We’ve outlined three simple steps to setting up a Buy-Sell Agreement below.

Step One: Determine the value of your business

To calculate the value of your business, there are three methods that you can use:

1. Book value – the value of your business’ assets minus its liabilities
2. Market value – the amount a qualified buyer is willing to pay for your business
3. Capitalization of earnings – a formula which accounts for expected future profits

Step Two: Determine each owner’s share of the business, and the value of the shares they own

If each owner owns an equal amount of the business, divide the value of the business by the number of owners.

As an example, if your business has four owners and your business is worth $1,000,000, each owner’s share is worth $250,000.

$1,000,000 (business value) divided by 4 (owners) equals $250,000 each.

If the owners of your business own varying amounts of the business, use the percentage of the business each owner controls to determine the value of their share of the business.

An example, let’s say your business has three owners and your business is worth $1,000,000. One owner controls 40% of the business and the other two owners control 30% each.

Owner One’s share of the business is $400,000 (40% of $1,000,000)

Owner Two and Three’s share of the business is $300,000 (30% of $1,000,000)

Step Three: Purchase a life insurance policy equal to each owner’s share of the business

Once you have determined the value of your business and the value of each business owner’s share of the business, you’ll need to purchase a life insurance policy with a death benefit equal to this amount. Most businesses choose a 10-year term, but if your business is young, you may want to consider purchasing a policy with a longer period of coverage.

In the event of a business owner passing away, the benefit from the life insurance policy will be paid directly to the deceased owner’s surviving family. This will effectively buy their share of the company allowing the company to continue operating without being forced to sell assets.

To learn more about Buy-Sell Agreements, please read our article: “Setting Up A Buy-Sell Life Insurance Agreement to Protect Your Business,” or give us a call toll-free at: 855-902-6494.

5. Secure a Small Business Loan

life-insurance-to-secure-an-sba-loanWhen applying for a small business loan, or a loan through the Small Business Administration (SBA), most lenders will require you to purchase a life insurance policy equal to the amount of your loan. If you pass away before you have paid back the loan, your life insurance policy will pay off the remaining balance of your loan to the lender.

This influx of cash keeps your surviving family members out of debt, and it gives you peace of mind. If something happens to you, your family will be able to continue running your business without facing debt. We always recommend applying for life insurance before you shop for a loan because some life insurance policies can take up to eight weeks to get approved. However, if you’re in a time crunch, we also offer life insurance policies that can be approved in as little as 24 hours.

We are business owners ourselves, and we would be happy to take the time to help you figure out the best strategy for you to get your new venture off the ground and start making your dreams a reality. Even Walt Disney used life insurance to help start Disneyland.

6. Reduce or Avoid Estate Taxes

tax-benefits-of-life-insuranceIf the value of your estate exceeds the current estate tax exemption, you may want to consider purchasing a permanent life insurance policy to reduce or avoid estate taxes for future generations. As of 2018, the IRS Estate Tax Exemption was set at $11.2 million per individual or $22.4 million per married couple.

If the value of your assets and estate exceed this amount, your heirs could be facing a 40% tax rate. This federal tax rate is levied against your estate by the IRS when you pass away and it must be paid within nine months of your passing. In addition, some states also charge inheritance taxes which could force your heirs to sell most of the assets you intended to leave behind for them.

To prevent your loved ones from having a “fire sale” to sell off your assets at a discounted rate, many financial advisers will recommend purchasing a permanent life insurance policy. When you pass away, the death benefit from your life insurance policy will be used to reduce or eliminate your estate tax liability.

This allows your estate to be passed down, untaxed, as you intended. Our agency works with dozens of top-rated companies that offer life insurance policies with guaranteed rates and coverage until up to the age of 120 for estate planning purposes. To learn more about reducing your estate taxes with life insurance, please read our article, “Estate Planning Life Insurance – Tips & Advice.”

7. Fund a College Education

life-insurance-to-fund-a-college-educationIn order to fund a college education, most life insurance agents will recommend a permanent policy that builds a cash value. Technically, in 15 to 20 years you would be able to borrow against your permanent policy to fund a college education. However, once you withdraw this cash, from your policy, it is considered a loan. To keep your policy active, this loan must be paid back with interest, and your policy’s death benefit will be reduced by the amount of loan until it is repaid.

These types of “permanent” whole or non-guaranteed universal life insurance policies pay the highest commissions to the agent, but they are not advantageous to the consumer. If you calculate the amount of money you will need to pay into this type of policy versus the amount of cash you will accumulate towards funding a college education, you’ll find out that you were better off stuffing your cash under the mattress.

In addition, you should always keep your life insurance and your investments separate from one another. Instead of overpaying for life insurance, buy a term policy that will extend coverage until the age that you expect your children or grandchildren to graduate from college. A term policy is a fraction of the cost of a cash accumulation policy, and you can save your own money for college expenses or anything else that may come up.

If you pass away before your loved ones make it to college, your policy will pay as a tax-free, lump sum to pay for their education. This also allows you to control your own money without management fees because you’ll be saving the difference in cost and putting it into your own savings account. Additionally, if you run into a tough spot with your finances, you don’t have to worry about losing your life insurance.

Another alternative would be to buy a guaranteed universal life insurance policy that will guarantee a tax-free payout to your loved ones when you pass away. These policies offer affordable lifetime coverage without requiring any investment risks making them more affordable than any other type of lifetime coverage. Below we’ve provided some sample quotes by age and gender to show you how affordable this type of coverage can be.

Rates for a Guaranteed Universal Life Policy with Level Premiums to Age 100

Current AgeMaleFemale

*Displayed monthly rates are accurate 10/04/2017 and are available to qualifying non-smokers in excellent health. Sample rates and are provided for illustrative purposes only.

We always recommend guaranteed universal life insurance over non-guaranteed universal life insurance because if you fail to repay the cash value that you take from your policy, your policy could lapse and you could lose your coverage. It’s also very important to note that the cash value in your permanent policy is lost if you pass away before you withdraw it.

Still Have Questions? We Can Help

We’re here to help! If you would like to start the application process, or if you have questions about how life insurance might be able to help you, give us a call. Our agents do not have quotas or sales goals to meet. We provide our clients with a consultative approach to life insurance, not pushy sales tactics. We will shop more than 60 top-rates life insurance companies to find your best rates and options for coverage.

Give us a call today, toll-free at 855-902-6494, or request a free instant quote below to shop dozens of companies in less than a minute.

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