Figuring out how to use your life insurance while you’re alive can feel like discovering a hidden feature on a familiar device. In Nigeria, many view life insurance solely as a safety net for loved ones—a final gift to protect a family’s future. While that is a core purpose, a massive, often overlooked, aspect of modern life insurance is its powerful benefits for you, the policyholder, right here and now.
Many policies are designed as flexible financial tools. Let’s explore the surprising answers to how to use your life insurance while you’re alive.
How to Use Your Life Insurance While You’re Alive
- Access a Tax-Advantaged Emergency Fund via Policy Loans
- Use Riders to Protect Yourself During a Health Crisis
- Supplement Your Retirement Income
- Fund Major Life Goals like Education or a New Business
- Make a Strategic Withdrawal for Immediate Needs
- Use Dividends for Extra Cash or to Pay Premiums
- Sell Your Policy for a Lump Sum (Life Settlement)
1. Access a Tax-Advantaged Emergency Fund via Policy Loans
Accessing your policy’s cash value through a loan is one of the most direct ways to use your life insurance while you’re alive. Permanent life insurance policies, like whole life and universal life, build up a “cash value” component over time. This cash value grows on a tax-deferred basis.
Once you’ve accumulated a sufficient amount, you can borrow against it.
- How it works: You’re not pulling money out of your account, but rather using your cash value as collateral for a loan from the insurance company.
- The benefits: These loans often come with lower interest rates than traditional bank loans, require no credit check, and have flexible repayment terms. Crucially, the loan is generally not considered taxable income. You can use this money for anything—a medical emergency, urgent home repairs, or a sudden business opportunity.
2. Use Riders to Protect Yourself During a Health Crisis
Riders are a fantastic answer for those wondering how to use their life insurance while they’re alive for healthcare. These add-ons provide extra benefits, often by giving you early access to your death benefit if you face a serious health issue.
- Accelerated Death Benefit (ADB): If you are diagnosed with a terminal illness and have a limited life expectancy, this rider allows you to receive a significant portion of your death benefit in advance. This can help pay for medical treatments, hospice care, or simply allow you to fulfill a lifelong dream.
- Critical Illness Rider: If you suffer from a specified critical condition like a heart attack, stroke, major organ transplant, or cancer, this rider pays out a lump-sum benefit. This money is vital for covering costs that your regular health insurance might not, such as lost income, travel for treatment, or home modifications.
- Chronic Illness Rider: Similar to the above, this rider provides benefits if you’re diagnosed with a chronic condition that prevents you from performing daily activities like eating, bathing, or dressing on your own.
3. Supplement Your Retirement Income
Another strategy for using your life insurance while you’re alive is to supplement your retirement income. Retirement planning is a marathon, and the cash value in your policy can be a surprising source of fuel for the final laps. It can be accessed systematically through withdrawals or loans to create an additional, tax-advantaged income stream during your retirement years, supplementing your pension or other investments.
4. Fund Major Life Goals like Education or a New Business
The cash value in your policy is your money. Instead of taking out a high-interest student loan for your child’s university education, you could consider a policy loan against your cash value. The same logic applies to funding a dream business venture. It provides a source of capital that is flexible and doesn’t require you to go through the rigorous approval process of a bank.
5. Make a Strategic Withdrawal for Immediate Needs
Unlike a loan, a withdrawal is a permanent removal of a portion of your cash value. While this will reduce your final death benefit, it can be a strategic move if you need funds and don’t intend to pay them back. It’s an option for a down payment on a house or another major life expense. Just be sure to consult with a financial advisor to understand the long-term impact on your policy.
6. Use Dividends for Extra Cash or to Pay Premiums
If you have a “participating” whole life policy from a mutual insurance company, you may earn dividends. While not guaranteed, these dividends represent a share of the insurer’s profits. You can choose to receive these dividends as a cash payment, use them to pay your policy premiums, or reinvest them to purchase more coverage and grow your cash value even faster.
7. Sell Your Policy for a Lump Sum (Life Settlement)
In certain situations, typically for older policyholders (often 65+), you may have the option to sell your life insurance policy to a third-party investor for a lump sum of cash. This is known as a life settlement. The amount you receive will be more than the policy’s cash surrender value but less than the full death benefit. This can be a viable option if your beneficiaries no longer need the financial protection, and you could use a significant cash infusion.
A Note for Nigerians: Making Your Policy Work for You
While these living benefits are becoming more common, not all policies are created equal. When purchasing life insurance in Nigeria, it is crucial to:
- Ask specifically about “living benefits” and cash value accumulation.
- Read the policy documents carefully to understand the terms, conditions, and any fees associated with loans, withdrawals, or riders.
- Work with a reputable insurance provider regulated by the National Insurance Commission (NAICOM).
Final Thoughts
Thinking of life insurance only as a death benefit is like buying a smartphone just to make calls. By understanding how to use your life insurance while you’re alive, you can unlock its full potential. Leveraging these living benefits transforms your policy from a simple safety net into a dynamic financial asset that serves you throughout your entire life.
Ready to see what your life insurance can do for you? Review your current policy or speak with a qualified financial advisor today to unlock its full potential.
