How To Get Advance Payments On Life Insurance

Life insurance is often seen as a safety net that provides financial protection for loved ones in the event of the policyholder's death. However, life insurance policies can also be valuable assets for policyholders while they are still alive. In certain circumstances, policyholders can access the value of their life insurance policies before their demise. This can be done through a life insurance advance, which offers a lump sum of cash to qualified policyholders who are terminally or chronically ill. This option allows individuals to cover medical, travel, and household expenses without selling their life insurance policy, ensuring their loved ones remain protected by the policy's death benefit.

Getting a life insurance advance as a terminally ill policy owner

If you have been diagnosed with a terminal illness, you may be able to access some of your life insurance death benefits in advance. Many life insurance policies offer "accelerated death benefits," which allow policyholders who have been diagnosed with a terminal illness to access a portion of the policy's death benefit while they are still alive. This can be used to cover medical expenses and other short or long-term care needs.

To qualify for an accelerated death benefit, you will need to provide proof of your terminal illness and meet certain criteria. For example, some policies require medical evidence that you are expected to die within a specific timeframe, such as six months or a year. The amount you can withdraw will depend on the insurance company and the specific policy. In some cases, you may be able to withdraw up to a certain percentage or maximum amount from your death benefit. It's important to note that accessing your benefits early will reduce the amount of money received by your beneficiaries.

Another option to consider is taking out a policy loan if your permanent life insurance policy has a cash value. You can borrow against your policy, but this will also reduce the death benefit if left unpaid. Policy loans accrue interest, similar to other types of loans.

Additionally, if you have a guaranteed insurability rider as part of your life insurance policy, you may be able to buy additional coverage to protect your loved ones despite your terminal illness diagnosis. This option allows you to purchase more life insurance without undergoing the underwriting process again. However, most policies only allow you to exercise this option at certain intervals, such as your policy anniversary date or every five or ten years.

It is important to carefully review your life insurance policy and consult with a licensed insurance agent or financial professional to understand your specific options and make informed decisions regarding your coverage and benefits.

The benefits of a life insurance advance

A life insurance advance can be a valuable option for policyholders who need access to cash while they are still alive. Here are some key benefits of a life insurance advance:

Access to Immediate Funds

Life insurance advances provide qualified policyholders with immediate access to a lump sum of cash. This can be especially beneficial for those facing unexpected expenses or financial obligations, such as medical bills, travel costs, or household needs. By obtaining a life insurance advance, policyholders can meet their financial needs without having to sell their life insurance policy.

Retention of Policy Ownership

One of the most significant advantages of a life insurance advance is that the policyholder retains ownership of their life insurance policy. Unlike a typical viatical settlement, where the policy is sold to a direct buyer, a life insurance advance allows policyholders to continue owning their policy. This ensures that their loved ones will still receive a life insurance benefit upon their passing.

No Impact on Credit Score or Income

Qualifying for a life insurance advance is different from obtaining a traditional loan. Policyholders' personal credit scores and income levels are not considered during the application process. This makes life insurance advances a viable option for individuals who may be unemployed, disabled, or experiencing financial difficulties due to unexpected medical expenses. The life insurance policy itself serves as the sole guarantee for the loan.

All Types of Life Insurance Policies Qualify

Regardless of the type of life insurance policy, all types of policies can qualify for a life insurance advance, including term life, universal life, whole life, variable, and even group policies. This broad eligibility criterion makes life insurance advances accessible to a wide range of policyholders.

No Out-of-Pocket Costs or Premium Payments

Life insurance advances typically come with no out-of-pocket costs or expenses for the policyholder. There are no loan payments, interest, or fees due during their lifetime. Additionally, the lender covers all the premiums, ensuring that the policy remains active throughout the owner's lifetime. The accumulated premiums, the life insurance advance, and interest are all repaid upon the policyholder's death using the death benefit.

Quick Access to Benefits for Beneficiaries

Life insurance advances can also benefit the beneficiaries of the policy. Traditionally, processing a life insurance claim and receiving the payout can take several weeks or even months. With a life insurance advance, beneficiaries can receive a portion of the policy benefits within days or weeks, providing much-needed financial support during a difficult time.

Life insurance advance vs viatical settlement

Life insurance policies are meant to provide financial security for your loved ones in case of your untimely demise. However, there may be situations where you need money while you are still alive. In such cases, you can opt for a life insurance advance or a viatical settlement.

Life Insurance Advance

A life insurance advance is a loan option for qualified policy owners who are terminally or chronically ill and need immediate cash. It is secured against the policy owner's life insurance policy, and the owner gets to retain ownership of the policy. The beneficiaries of the policy will still receive a portion of the death benefit upon the owner's passing. The lender pays all the premiums and there are no loan payments, interest, or fees to be paid before the policy owner's death. The loan is paid back from the death benefit of the policy.

Viatical Settlement

A viatical settlement is an arrangement in which someone who is terminally or chronically ill sells their life insurance policy at a discount from its face value in exchange for immediate cash. The buyer of the settlement pays a lump sum in cash and assumes responsibility for all future premiums. The buyer becomes the sole beneficiary and receives the full death benefit when the original policy owner dies.

The main difference between a life insurance advance and a viatical settlement is that in a life insurance advance, the policy owner retains ownership of the policy, whereas in a viatical settlement, the policy is sold to a third party. Another difference is that in a life insurance advance, the beneficiaries still receive a portion of the death benefit, while in a viatical settlement, the seller gives up the right to leave the policy's death benefit to a beneficiary of their choice. Additionally, a life insurance advance is a loan that is paid back from the death benefit, while a viatical settlement is a sale of the policy.

Both life insurance advances and viatical settlements can provide much-needed financial relief to individuals facing serious illnesses. The choice between the two depends on personal circumstances, health condition, and financial needs.

Eligibility for a life insurance advance

Health Status

To qualify for a life insurance advance, individuals must generally experience a significant decline in their health and be terminally or chronically ill. This indicates a shorter life expectancy, which is a critical factor in the eligibility assessment.

Policy Ownership

Any type of life insurance policy can make one eligible for an advance, including term, universal, whole, variable, and group life insurance. It is not a requirement to have a policy with cash value.

Policy Benefit

The value of the life insurance policy plays a role in determining eligibility. Typically, the policy benefit must be at least $100,000 to qualify for an advance.

Credit History and Income

Unlike traditional loans, a life insurance advance does not consider an individual's credit score or income. Instead, the advance is based solely on the death benefit of the policy. This means that even if unexpected medical expenses or unemployment have negatively impacted one's income or credit, they may still be eligible for an advance.

Age

Age is not a determining factor in eligibility. As long as the policy owner meets the other criteria, they can qualify for a life insurance advance regardless of their age.

It is important to note that not everyone will qualify for a life insurance advance, and the specific requirements may vary depending on the lender or insurance provider. It is always advisable to carefully review the terms and conditions of any financial product before making a decision.

Life insurance advance vs life settlement

Life insurance advances and life settlements are two different options for people who own a life insurance policy and need money while they are still alive.

Life Insurance Advance

A life insurance advance is a loan secured by a person's life insurance policy. It is available to qualified policy owners who are terminally or chronically ill and need money to cover medical, travel, lodging, and household expenses. The owner receives a tax-free lump sum of cash without having to sell their policy, and the beneficiaries still receive a portion of the death benefit upon the owner's passing. The lender pays all premiums, and there are no loan payments, interest, or fees due before the owner's death. All types of life insurance qualify, even those with no cash value.

Life Settlement

A life settlement is the sale of a life insurance policy by the policy owner to a third party. The seller typically receives a one-time cash payment that is more than the cash surrender value of the policy but less than the amount of the death benefit. The third party then becomes the policy's beneficiary and assumes payment of its premiums, receiving the death benefit when the insured dies. Life settlements are often used by older adults who need money for retirement or to pay for healthcare costs or long-term care. The majority of people who sell their policies are older and may no longer need the policy for their dependents.

Key Differences

The main difference between a life insurance advance and a life settlement is that, in a life insurance advance, the policy owner retains ownership of their policy and their beneficiaries still receive a portion of the death benefit. In contrast, a life settlement involves selling the policy to a third party, who then becomes the beneficiary. Another difference is that a life insurance advance is specifically for people who are terminally or chronically ill, whereas a life settlement can be used by anyone who no longer needs or can no longer afford their policy.

Frequently asked questions