6 Cosas que no sabía que cubre tu seguro de vida

Last updated May 5, 2010

Life insurance is straightforward: Pay your premiums and your beneficiaries get the benefit when you die. But sometimes life insurance can be used in ways you may not expect. Here are some of the ways your life insurance policy could hold good surprises.

Life insurance could come to the rescue if you have a terminal illness.

If you are diagnosed with a terminal illness, you may be able to tap into your policy benefits right away to help pay for medical bills or other immediate expenses. These “accelerated death benefits,” also called “living benefits,” may have been automatically included in your policy, or you may need to add them as a rider. Contact your insurance agent to see if you already have this option. For more, read how life insurance living benefits provide cash for the terminally ill.

You may be able to convert your term life or group life policy to a permanent life insurance policy

Most term life and group life policies come with the ability to convert that policy into an individual permanent life insurance policy — without undergoing an additional medical exam. (Of course you’ll pay higher premiums for the permanent life policy.) This can be invaluable if you are diagnosed with a severe medical condition and you want to ensure continued life insurance coverage when your term life policy runs out, or if you leave your job and lose your group life benefits.

You can use your permanent policy to rescue yourself from financial disaster

In a time of financial crisis when you need cash, you may first think of exhausting your savings account, cashing in your stocks, taking out loans and even gutting your 401(k). Cash value that has built up within a permanent policy might be easily forgotten. Yet cash value’s purpose is to come to the rescue in these moments.

“Where else can you go to borrow money where there’s no collateral required and no proof of income needed?” says Jack Dewald, a life insurance agent and chair of the board of directors of the Life and Health Insurance Foundation for Education. “Your life insurance policy can be a lifeline to you for cash and loans, especially in a down economic time. For example, you use cash value in life insurance before your house gets foreclosed.”

Your policy may pay for your long-term care

Many life insurance companies are inventing policies that can be used in a number of ways depending on your situation. Growing in popularity is the long-term care rider, which you may have added at the time you bought your policy. Long-term care riders allow you to take immediate payouts to pay for your assisted-living facility or nursing home. Your death benefit is reduced by the amount you take out.

Your policy may pay its own premiums if you can’t

Who will pay your life insurance premiums if you’re unable to work due to disability or serious illnesses? You can often choose to have your policy pay its own way in that case. By adding a “waiver of premium” rider when you buy your policy, you can ensure that you won’t have to continue premium payments if you’re out of work for a certain length of time (such as six months) and for certain reasons (like disability). Waiver of premium rules will vary by company.

You may be able to turn your spouse’s life insurance into your own policy when he or she dies

In addition to long-term care coverage, life insurance riders offer a panoply of options. Among helpful riders is one available from New York Life Insurance Co. called the “Spouse’s Paid-Up Insurance Purchase Option” (SPPO), automatically attached to most New York Life permanent policies.

This rider is useful when one spouse is “uninsurable”: He can convert the death benefit of his spouse’s policy into a paid-up policy on himself, thus giving himself coverage that he otherwise couldn’t buy.

For example, insurance agent Bob Arensberg helped a couple use a life insurance policy in ways they didn’t expect. A California client bought a New York Life policy for $750,000 from him in 2002, but her husband was not able to get a similar policy due to a serious back injury. His client was later diagnosed with cancer. Before her death in 2007 at the age of 42, she exercised an accelerated death benefit to access some of her policy benefit in order to buy land and build a house to leave for her husband and two children. In addition, after his client’s death, Arensberg mentioned the SPPO rider to her husband, who had not been aware it existed. He was able to exercise the rider and convert the remainder of his wife’s policy into a paid-up policy on himself.

Even better than getting an unexpected value from your life insurance is already knowing the options you have available. “Be alert to the value of working with your agent,” advises Gary Dworkin, past chairman of the National Association of Independent Life Brokerage Agencies. “Let them review your policies every year. Ask questions.”