When most people think about life insurance, they picture a policy that provides a payout to beneficiaries after death. While that’s an important function, life insurance has evolved to serve a much broader role in financial planning. Today’s policies offer a range of features that go beyond protection—known as living benefits of life insurance—that can support your goals during your lifetime. 

Whether you’re planning for retirement, preparing for future healthcare needs, or looking for tax-efficient ways to transfer wealth, life insurance can be a versatile financial tool. At Fredericks Wealth Management, we assist clients in understanding how life insurance can be a part of a broader strategy, highlighting its potential benefits.

What Are Living Benefits? 

Living benefits refer to features within a life insurance policy that provide financial value while the policyholder is still alive. These benefits vary depending on the type of policy and may include: 

• Cash value accumulation 

• Access to policy loans or withdrawals 

• Accelerated death benefits for chronic or terminal illness 

• Long-term care riders or hybrid coverage 

• Tax-deferred growth and tax-free income potential 

These features can potentially enhance the flexibility, liquidity, or protection of your financial plan, depending on your individual circumstances. 

Using Life Insurance as a Retirement Income Supplement 

Certain types of permanent life insurance, such as whole life or indexed universal life (IUL), build cash value over time. This cash value grows tax-deferred and can be accessed through policy loans or withdrawals. In retirement, these funds can serve as a supplemental income stream. 

While accessing cash value may reduce the policy’s death benefit and involve fees or interest, it offers flexibility during years when other income sources may be down or unavailable. This is particularly helpful for managing tax exposure or covering unexpected expenses. 

When structured properly, leveraging the living benefits of life insurance for income can be part of a diversified retirement strategy. 

Preparing for Long-Term Care Costs 

Many modern policies offer riders that allow policyholders to access part of the death benefit early if diagnosed with a chronic or terminal illness, or if they require long-term care. These accelerated benefits can help cover the cost of care at home, in assisted living, or in a nursing facility. 

Long-term care is one of the most significant financial risks retirees face. A life insurance policy with a long-term care rider—or a hybrid life/long-term care policy—can offer dual protection without the “use it or lose it” concern that comes with traditional long-term care insurance. 

Including these features as part of your financial plan provides another way to address healthcare costs without depleting other assets. 

A Tax-Aware Legacy Planning Tool 

Life insurance can also play a valuable role in estate and legacy planning. The death benefit is generally income tax-free to beneficiaries, making it an efficient way to pass wealth to the next generation or charitable causes. 

In addition, permanent policies can be used to equalize inheritances or fund trusts that support long-term family or philanthropic goals. When combined with other elements of an estate plan, the living benefits of life insurance can help protect your assets and support the execution of your wishes. 

Access to Cash in Times of Need 

The ability to borrow from or withdraw cash value while living offers a financial safety net. Whether you face an emergency, need to cover a large purchase, or want to support a child or grandchild, life insurance can offer liquidity when other resources may not be readily available. 

It’s important to manage withdrawals and loans carefully, as they can affect policy performance and reduce future death benefits. A financial professional can help evaluate the pros and cons based on your individual needs. 

Making the Most of the Living Benefits of Life Insurance 

Life insurance can be a part of your financial strategy, providing a safety net for your loved ones. From income planning and healthcare coverage to legacy building and tax-smart withdrawals, the living benefits of life insurance can provide flexibility and value throughout your lifetime. At Fredericks Wealth Management, we help clients understand their options and integrate life insurance into a broader, purpose-driven plan. If you’re curious about how life insurance can work for you beyond a death benefit, reach out today to start the conversation.