Besides
the death benefit, it may also help you financially during your life.
As a recent Bankrate.com article noted, 43% of Americans have no life insurance. Some view it as optional; some have simply procrastinated when it comes to buying a policy. Others believe that they can’t afford it.1
In reality,
life insurance is cheap today. If you just want term life coverage –
essentially life insurance that you “rent” for X number of years – you may find
it quite affordable wherever you live. A little comparison shopping online
reveals that a 40-year-old non-smoking woman in good health in Milwaukee would
pay premiums of just $385-400 a year for a 20-year level term policy with a
$500,000 death benefit. (She would have more than a dozen providers to choose
from.)2
If you
choose permanent life insurance rather than term life, new possibilities
emerge.
In addition to a benefit for your heirs at your death, an insurance policy
capable of building cash value gives you more capability to address financial
needs during your lifetime.
Permanent
life insurance can let you build cash value. The premiums on a whole, universal or
variable life policy are higher than for a term life policy, but there is a
reason for that – as you pay into one of these policies, the policy accumulates
cash value. That cash value grows without being taxed.3
In all probability, the cash value will
continue to be available as long as you live. Insurance companies have gone
under, but the reality is that very, very few do. They guarantee the death
benefit and the viability of the policy as long as you keep making the premium
payments.
If you need
a loan someday, a Cash value life policy gives you an option. You can borrow against the
cash value once you have funded the policy with a sufficient amount of
premiums. (You can even tap the cash value to pay the premiums, if you like.)3,4
The terms of such a loan from your policy may
be much better than loan terms a bank could offer, and will certainly be preferable
to the terms of a predatory lender. Taking a loan against your insurance policy
also involves much less red tape and fine print than arranging a loan from a workplace
retirement plan. One risk: if you die while the loan against the policy is
still outstanding, the remaining balance may be deducted from the death
benefit, and it will also be fully taxable.4
Many of
these policies come with degrees of flexibility. You may be able to
transfer some of the cash value into another insurance product, with the death benefit unaffected.
The death benefit, of course, can do
much to preserve your loved ones’ quality of life. Life insurance death benefit proceeds are almost never
taxed (only under rare circumstances does the IRS count them as gross income).
So a permanent life policy will give your heirs money to address funeral and
burial expenses and possible estate taxes, and the funds could provide them
with part of their inheritance.5
Cash value life insurance also means permanent coverage, as long as the
policy is in force. The death benefit will not be readjusted or diminished if
you fall ill, and if you buy a policy in your thirties or forties, you save money
compared to those who purchase a policy after 50.
Permanent life insurance is also highly
useful in estate planning. There are
all manner of trusts used in conjunction with permanent life policies, such as
irrevocable life insurance trusts (ILITs), special needs trusts, spendthrift
trusts, special living trusts, charitable remainder trusts, and more. Often, a
trust can be named as beneficiary of a permanent life policy, an estate
planning step toward an eventual financial benefit to heirs.6
First and foremost, life insurance matters
for its death benefit – but those considering it should not overlook its
financial utility in other situations during the course of life.
This material was prepared by MarketingPro,
Inc., and does not necessarily represent the views of the presenting party, nor
their affiliates. This information has been derived from sources believed to be
accurate. Please note - investing involves risk, and past performance is no
guarantee of future results. The publisher is not engaged in rendering legal,
accounting or other professional services. If assistance is needed, the reader
is advised to engage the services of a competent professional. This information
should not be construed as investment, tax or legal advice and may not be
relied on for the purpose of avoiding any Federal tax penalty. This is neither
a solicitation nor recommendation to purchase or sell any investment or
insurance product or service, and should not be relied upon as such. All
indices are unmanaged and are not illustrative of any particular investment.
09212015-WR-1401
Citations.
1 - bankrate.com/financing/insurance/how-painful-is-the-life-insurance-talk/
[9/15/15]
2 - tinyurl.com/oszbry4 [9/16/15]
3 - investopedia.com/terms/c/cash-value-life-insurance.asp
[9/16/15]
4 - thesimpledollar.com/life-insurance-cash-value/
[9/16/15]
5 - tinyurl.com/p266dp4 [6/4/15]
6 -
dailyfinance.com/2015/05/07/how-to-supercharge-trusts-with-life-insurance/
[5/7/15]