Life insurance is one of the core aspects in your financial plan. It covers your family and loved ones if the worst case scenario occurs, and with the specialized plans today through life insurance, coverage goes far beyond just the time of your passing. Living benefits are more desirable with what they have to offer.
Advance Your Permanent Life Insurance With Living Benefits
Among the jumble of policies, there are two types of life insurance – permanent and term. These two are best known for their ability to provide a death benefit. Although we’re talking about the contrary (living benefits), utilizing these policies can strengthen your financial position from any standpoint in life.
Term life insurance provides protection for only a specific period of time (usually in 5 year intervals anywhere from 10 – 25 years) and pays out the death benefit if you pass before the term’s expiration. If you outlive your policy, your coverage will vanish.
Permanent life insurance, on the other hand, provides protection throughout your lifetime (as long as premiums are paid) and offers plenty of additional financial benefits. Permanent life insurance policies build cash value that grows as time passes. With that accumulation, you can enjoy money while you’re alive, or what we call “living benefits”.
Here Are 8 Ways Living Benefits Can Boost Your Life Insurance Policy
1. FLEXIBLE FUNDS FOR RETIREMENT
You can use your permanent life insurance cash value to supplement your retirement income without the requirements and limitations that apply to 401(k) and IRA retirement accounts. You have several choices, including receiving your dividends in cash, surrendering paid-up additions that you purchased along the way, or taking a policy loan (all of which may have tax consequences or impact the death benefit). If you no longer need the death benefit and would like guaranteed income from your life insurance contract, you also may terminate the policy and have the cash surrender values paid out as an annuity.
2. “Collateral” for policy loans
The cash value you accumulate is an asset on your balance sheet with unique characteristics compared to other assets, such as your home, business, investments, and retirement funds. You may borrow money against the cash value of your policy at any time and for any reason. Among other things, policy loans can be tapped for funds to purchase a home, invest in a business or commercial property, handle a financial emergency, or supplement retirement income. You also may use the cash value as collateral to secure a loan from a bank. Cash value and death benefits are reduced if the loan is not repaid.
3. Guaranteed, tax-deferred growth
Your life insurance cash value is guaranteed to grow and to never decline in value. It contributes to your financial security with stable yet consistent growth that supports your financial goals.
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4. COLLEGE SAVINGS
Life insurance cash value is one of the few assets not considered in federal college financial aid calculations. Families with college-age children who have permanent life insurance policies not only can use the policy’s cash value (via policy loans) to pay college funding and housing expenses but also might benefit from greater financial aid opportunities.
5. Locked-in insurability
Buying life insurance early in life is the best way to lock in your insurability, whether you are a parent buying life insurance for your children or a young single person without a spouse or children. As needs change, you can expand your coverage by converting a term policy to permanent insurance before it expires or by adding to an existing permanent insurance policy using an additional purchase option.
6. Legacy opportunities
There are many opportunities to leave a legacy through life insurance in addition to providing for your spouse, family and other heirs. If you own a business, you may consider using a policy as part of a buy-sell agreement to ensure continuity of a small business or liquidate your ownership stake upon your death. If you have a favorite charity or local cause, you can fund a legacy gift with a life insurance policy, naming the organization as beneficiary.
7. Tax benefits
Permanent life insurance offers many tax advantages, including tax-deferred growth on cash value accumulation, tax-favored access to cash value up to the basis, and generally tax-free distribution of death benefits. Life insurance is also used for estate planning to help cover estate taxes and ensure that the estate owner’s assets can be distributed as desired to heirs and family members.
8. Long-term care
If paid-up additions have been purchased with dividends during the life of your policy, you may be able to surrender them tax-free to pay for long-term care (LTC) insurance premiums by utilizing a 1035 exchange. This will decrease the policy’s death benefit and cash value as well as future dividends but could help you to fund long-term care insurance if you so choose. There also are other options for paying LTC premiums with your cash value. A financial representative can tell you more about these options for using your life insurance policy.
Content from list provided by Northwestern Mutual
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