Is there any way I can use life insurance to help cover my expenses if I become terminally ill?
There are several ways you can use your existing life insurance policy to pay expenses if you become terminally ill.
If your policy has accumulated cash value over the years, you can borrow against it. You must then pay back the borrowed amount; if you don't, the amount owed plus interest is subtracted from the death benefit. Or, you can simply surrender your policy and get a check for the cash value, but then you no longer have life insurance.
You may also have a life insurance policy that includes an accelerated benefits rider. If so, the accelerated benefit can be used if you have one year or less to live. The insurance company will pay a portion of the death benefit to you while you are still living. The portion is usually 25 percent, up to a certain maximum dollar amount. At your death, the insurance company will pay the balance of the death benefit to your beneficiary. There may be a charge for this benefit to cover administrative costs.
A viatical settlement is a financial transaction in which you, the owner of a life insurance policy, sell the policy for cash while you're still living. The new owner, typically a viatical settlement broker, resumes your premium payments and becomes the beneficiary. Companies that offer viaticals usually pay about 60 percent of the face value of the policy, with the amount they pay based largely on the health and age of the insured.
Although the cash you receive in a viatical settlement can be helpful, you must be extremely careful--you may have dependents who will need your life insurance benefit when you die. You may find it helpful to discuss the financial impact of a terminal illness with a financial planner. Before selling parts or all of your policy or surrendering it, consult a trusted financial advisor to address any possible tax consequences.