How Can Advisors Make the Most of Life Insurance Living Benefits

Life insurance usually gets put in the “break-glass-in-case-of-emergency” category. It’s the financial version of a fire extinguisher—everyone’s glad it’s there, but nobody’s really excited about it. But here’s the kicker: there’s way more to it than just cutting a check when someone’s punched their ticket. 

Henry Montag, our content contributor with 38+ years of no-nonsense experience as an independent CFP practitioner, has been hammering this point home for decades—when you treat life insurance as an Asset Class, rather than as a death benefit, you unlock a stash of living benefits most people don’t even know exists. 

These aren’t pie-in-the-sky features. They’re baked right into the contracts. Yet you'd be surprised how often they get ignored—even by seasoned advisors who should know better. Most people can rattle off the usual: support the family, pay estate taxes, cover lost income. But ask them what that policy can do while they're still around to enjoy it, and you’ll get blank stares. 

Let’s break down three best-in-class yet underutilized living benefits that Henry sees flying under the radar for most clients and advisors: 

• Tax-deferred cash accumulation with tax-free distributions for retirement 
• Tax-free leveraged long-term care payouts from the death benefit. 
• Life settlements that turn unwanted policy premiums into larger cash payments.

Time to pop the hood and take a closer look. 

Building a Retirement Buffer the Smart Way

Here’s the deal: one of the most misunderstood features of life insurance is the ability to overfund a policy—yep, stuff it with more cash—right up to the MEC (Modified Endowment Contract) limits. The goal? To build up tax-deferred cash value that goes beyond just covering internal costs.  

While Term insurance is an ideal and least expensive way to fund a buy- sell agreement for partners or shareholders who wish to guarantee a death benefit for a limited period time, a permanent life policy that builds maximum cash value such as an Indexed Universal, IUL, or Variable Life policy VUL, can start out being used to fund a buy-sell agreement between partners. Then assuming neither of the partners/shareholders dies during the years the business was operating; each partner can then simply begin withdrawing the tax deferred accumulated cash value through a series of tax -free cash value withdrawals up to basis and then through a series of loans that never have to be paid back as long as the policy survives the insured. 

This isn’t some castle in the air, nor is it your father’s life insurance policy. Instead, it’s a smart strategy often used in executive compensation packages to retain a key person by providing their family with a death benefit paid for by the business, assuming the individual completes a predetermined set of employer objectives. And if they live, the tax-deferred accumulations can be used to supplement the key person’s retirement plan on a 100% tax-free basis, as long as the plan is set up properly and the policy remains in force. This is —a sweet little perk when it’s time to ride off into the retirement sunset.  Keep in mind that this strategy can also be set up to supplement the retirement income of a partner or shareholder of a business or professional practice.  

Whether you’re utilizing Whole Life (WL), Variable Universal Life (VUL), or Indexed Universal Life (IUL) policies, it’s all about utilizing appropriate best in class strategies to accomplish your client’s objectives. For your high-roller clients (think ultra-high-net-worth types), PPLI—Private Placement Life Insurance—is the VIP lounge. It’s got lower fees, no surrender charges, and lets them invest in hedge funds instead of basic mutual funds. That’s money moving in stealth mode. 

Long-Term Care That Doesn’t Make You Cringe

The Pension Protection Act of 2006 changed the game in 2010, giving life insurance a whole new superpower—doubling as a long-term care solution. Now, policyholders can tap into the death benefit to pay for qualified LTC expenses tax-free. Yes, you read that right—tax-free. 

Enter the Combo policies (also known as linked-benefit or hybrid policies). These policies can stretch one dollar of premium into three to five dollars in LTC coverage, depending on age & the insured’s health. That’s some serious financial kung-fu. 

And here’s where it really kicks in: if long-term care is never needed, the full death benefit pays out. No more excuses for the client that was hesitant to purchase a traditional long-term care policy because if they never required long-term care they would have lost all of the premiums they paid and never received a benefit. The “use it or lose it” excuse is gone. What’s left are new options that provide flexibility, and peace of mind. Combine that with the magic of leverage available in a life insurance policy and there is no better way to maximize the value of your premium dollars should you ever require any type of qualified long term care services. The requirements to access benefits of any long-term care Insurance coverage is the inability to do any two out of the five ADL’s, Activities of Daily Living, or any type of senile dementia/ Alzheimer’s even if they can do all of the ADLs. 

There’s one other very important benefit with these Combo plans; they lock in premiums. No surprise letters in the mail advising an insured that their rates are increasing, the way traditional LTC insurance policies did.  These Combo plans in a whole life policy or in a guaranteed universal policy are guaranteed to never increase costs, which your clients will thank you for down the line. 

Life Settlements 💰

Now for the real head-scratcher. A huge number of policyholders, especially those aged 70 and up—either surrender their policies for the policies cash surrender value or let them lapse altogether. That’s like selling a vintage Corvette for scrap because you didn’t realize you could sell it just like you could a house or a stock or bond. 

A life settlement gives an insured a far better exit strategy. Instead of walking away, they can sell the policy to an institutional third-party investor—usually for a lot more than what the insurance company is offering. The catch? Hardly anyone knows this is an option. Reason being Insurance companies like when people surrender their policies back to the Insurance company for its cash surrender value because it means they get to keep all of the yearly premiums you paid without ever having to pay out a death benefit. 

A study from the Insurance Studies Institute found that 90% of seniors who lapsed a policy would've taken a life settlement—if they’d even known it was on the table. That’s a stat worth taping to your desk. Here’s the other kicker: a lot of trustees (often adult kids with zero financial chops) don’t realize they should’ve been bumping up premiums over time as crediting rates dropped. That misstep alone has led to countless policies collapsing when they didn’t have to. 

Life settlements make serious sense for clients who: 

• No longer need the policy for estate taxes 
• Need cash yesterday 
• Want to gift money to kids or grandkids while they’re still around to see their smiles

In many cases, this isn’t just a good idea, it’s the best exit strategy available as it allows an individual to turn a premium bill into a lump sum of found cash with gains receiving favorable capital gains tax treatment. This transaction requires a Life Settlement Brokers, LSB license issued by the state where the sale takes place.  

Final Takeaway 🎯

Living benefits aren’t just a nice-to-have, they can be a real game plan enhancer. As Henry Montag has seen over nearly four decades in the trenches, advisors who understand these features aren’t just selling death benefits—they’re unlocking living wealth strategies. And on that note—while this article focuses on living benefits, it’s critical to remember that if the death benefit isn’t properly maintained, none of these benefits matter. Roughly 40–45% of in-force policies are non-guaranteed Universal Life contracts, many sold decades ago when interest rates were significantly higher. Today’s lower credit rates mean many of these policies are quietly underfunded. Unless premiums are adjusted (a responsibility that often falls to the trustee), 35–40% may expire prematurely. As cited in the Wall Street Journal, this is the life insurance industry’s “dirty little secret”—and one advisors can’t afford to overlook. You can learn more about it in our article: How Advisors Can Safeguard Client Life Insurance?  

The key is to stop treating life insurance like a one-trick pony. The benefits go way beyond the death payout, and in many cases, they’re what move the needle for clients who need flexibility, liquidity, or just plain smart financial options. 

So next time you’re reviewing a client’s policy, don’t just focus on the back-end payout. Ask the bigger question: What can this policy do for them now? Because sometimes, the best benefit is the one you don’t have to wait for. Your clients will forever be grateful to you for showing them a strategy that allows them to maximize and maintain a policies coverage rather than allowing it to expire prematurely as so many policies have as a result of sustained reduced interest rates and neglect, while at the same time make their clients aware of the many living benefits of today's life Insurance policy.