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MoneyWatch: Managing Your Money

How to use life insurance while alive

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By
Matt Richardson
Sr. Managing Editor, Managing Your Money
Matt Richardson is the senior managing editor for the Managing Your Money section for CBSNews.com. He writes and edits content about personal finance ranging from savings to investing to insurance.
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Matt Richardson

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Insurance file
You can potentially access your life insurance policy while you're still alive. Getty Images/iStockphoto

Life insurance comes in different shapes and sizes. Depending on your personal financial situation and long-term goals you could benefit from a term, whole, universal or variable policy. And if you want to skip the traditional medical exam, a no-exam life insurance policy may also make sense. 

While life insurance is often thought of as something you leave to your beneficiaries after you have died, there are ways you can use your life insurance while you're alive. This can be used to pay down debt, make mortgage payments or simply to help finance major expenses. But not every policy allows you early access. If you want this included in your plan, you'll need to do your homework first. 

If you're in the market for life insurance then start by getting so you know what to expect.

How to use life insurance while alive

You can potentially tap into your life insurance while you're alive. Here's how:

Get a whole life insurance policy

Whole life insurance is a form of permanent life insurance (as is universal and variable life). Permanent life insurance policies will allow you to access the cash portion of your account while you're alive. 

Term life insurance, meanwhile, does not have a cash element for policyholders to access. So, if you're planning on using your life insurance as a backup cash resource you'll want to avoid term policies.

Just note that, because of the cash factor, whole life insurance policies are typically more expensive than term plans. And you won't have immediate access to cash once the policy goes live. You'll need an adequate cash amount in the account before you can use it (and it takes time to build that up).

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Surrender your policy

Assuming you have a policy that has a cash element to it, you could then surrender it and withdraw the entire existing cash value. Again, this assumes two factors: That you have a policy that has cash and that you have built up enough value in the policy over time so that there's actually something substantive to take out. 

If both of those qualifications have not been met then you won't be able to use your life insurance while you're alive - or you'll have to wait until there's an amount large enough to withdraw from. 

Borrow from your policy

If you don't want to outright surrender your policy you may be able to take out a loan on the existing cash amount. Just understand, if you go this route, that the amount you ultimately owe on the policy's outstanding principal (and interest) will be taken from the death benefit before your beneficiaries receive it.

Still, this may be a better option than using a credit card or taking a personal loan because you won't have your credit checked in order to get the funds. You'll probably have better repayment terms, too.

The bottom line

It's a popular myth that you can't use your life insurance while alive. Not only can you potentially use it, but it may also be a better vehicle than other forms of credit. Just understand that the benefits afforded by a life insurance policy will vary based on the type of policy and which options you chose when buying your coverage.

If you're interested in the benefits this option can afford then start by getting .

Edited by Katherine Lam

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