Most people may not realize that life insurance can provide benefits well beyond paying for funeral expenses. You’ll want to consider life insurance if someone depends on your income for any number of reasons. That, of course, includes providing for children, but you could also use it to ensure your debts are paid or that loved ones receive the care they need.
Beyond just estate planning, life insurance continues to be a versatile cornerstone of financial planning strategies, offering everything from potential retirement income to policies that offer investment value.
Here are six ways to use life insurance:
Provide money to help the people you love In its most basic form, when you die, life insurance provides a sum of money to people you care for. You may want to use the death benefit for final expenses or to pay off a mortgage. Even in your 20s, you might want to think about life insurance if you’ve co-signed a student loan with your parents or others, so that your debt doesn’t become their financial burden. Or you may want to make sure there’s enough money for your children’s education or parents’ long-term care, for example.
Create another source of retirement income If you’re looking for a way to supplement your retirement income, a permanent life insurance policy — like whole life or universal life — might do the trick. Essentially, permanent life insurance allows you to use the policy to accumulate cash value, which is especially useful if you’ve maxed out your 401(k) or have too much income to contribute to a Roth IRA or make a deductible contribution to a traditional IRA. You can use that cash value any way you want — for yourself, to pay for a child or grandchild’s wedding or to cover an unexpected expense.
Have access to money in case you get sick With longer life expectancy, people rightly worry about the costs of chronic care. According to a study published in The American Journal of Medicine in 2018, more than 42% of 9.5 million diagnosed with cancer from 2000 to 2012 drained their life’s assets in two years. In the case of a disease like cancer or other qualifying illness, some permanent life insurance policies offer options called riders that, for an additional cost, allow you to use a portion of your death benefit while you’re still living to pay the costs associated with a terminal or chronic illness.
Protect your business and business partners
If you own a business, you not only care for your family, but you also care for any business partners and employees. If something happens to you, a partner or a key employee, you can ensure there’s as little impact to the business as possible. Among other things, life insurance can be used to facilitate the transfer of business ownership, fund non-qualified retirement plans and keep a business going during any transition after the death of an owner or key employee.
Leave a legacy You want to leave a meaningful amount of money to people you love and causes you care about — all while minimizing taxes. Many planning strategies use a part of the death benefit from a life insurance policy as a funding source to pay any taxes due on an estate. Typically, your beneficiaries won’t have to pay any taxes on the money they receive from your life insurance policy (per IRC 101(1)(a)). This benefit can also provide a meaningful donation to a charity or organization you care about, as well as loved ones.
Keep the tax bill down to leave more for your beneficiaries If you’re wealthy, you can give your heirs a bigger gift after a smaller estate tax bill by creating an irrevocable living trust that owns your life insurance and holds death benefits for those named in the trust to receive the money. The federal gift and estate tax threshold is pretty high—$11.4 million per person in 2019 (or $22.8 million for a married couple) — but some states collect taxes on much smaller estates and your heirs may benefit from tax-planning strategies using life insurance.
This is such a great article on the benefits and value of Life Insurance that we just had to share it. Read the complete article here. We encourage our MI neighbors to give us a call at RCB & Associates, LLC, to discuss how Life Insurance might support your health and financial goals. 616-233-9050