5 Ways to Get The Most Out of Your Life Insurance Policy
Many people believe life insurance is only for rich elderly folks and those with risky professions. The fact of the matter is, if you’re willing to pay a small amount of tax on a small life insurance premium, you could reap three to four times the money you put into it down the line. Life insurance is also much more versatile and flexible than other traditional savings methods.
Before we talk about how versatile life insurance can be, let’s explain some of the different types and forms of life insurance.
- Term insurance is the type of life insurance most people are familiar with. If you’ve ever had a friend or family member, try to get into the insurance industry, they’ve probably told you about this product. It is a pure life insurance product. That means that it has no savings component. There is only a death benefit. It is the cheapest type of life insurance you can get, second only to a group insurance policy. Many young people get this type of insurance when they first start a family and are thinking about securing a future for their children and partner, should anything happen to themselves. It is the most profitable insurance for the insurance companies, because only a small percentage of death benefits are ever actually claimed. Term insurance typically is typically bought in 10-, 15-, or 20-year increments, and not many people actually pass away while their policy is active.
- Group insurance covers an entire group of people under one contract. Typically, this is provided to you by an employer or labor organization. Term insurance is the most common form of group life insurance. We don’t recommend relying on group insurance because as one goes from job-to-job benefits can drastically change.
- Permanent life insurance policies offer a death benefit and cash value (a savings account) that you can borrow from once you have put a certain amount of money into the policy or when the policy reaches a certain age. These withdrawals are made on a tax-deferred basis. Permanent life insurance lasts from the time you buy the policy to the time you pass away, as long as you pay the required premiums.
- There are many different forms of permanent life insurance, with the most common being whole life insurance. With a whole life insurance policy, the premiums and death benefit stay fixed for the duration of the policy. These policies have a guaranteed rate of return, meaning the cash value is guaranteed to earn a minimum amount of interest.
PERMANENT LIFE INSURANCE OFFERS FLEXIBILITY
There are many ways you can take full advantage of the benefits a permanent life insurance policy offers you.
- Give your family a financially secure future. This first one is the most obvious. You can set the death benefit included in your life insurance policy to go to one or multiple intended beneficiaries when you pass away. This money is given to your family tax-free, and ensures that they are taken care of. They can use this money to cover funeral costs, and take that weight of their shoulders. The average costs for a funeral today is between $7,000 and $12,000 and is likely to increase in the future (https://www.lhlic.com/consumer-resources/average-funeral-cost/).
- Save for retirement. For many people, life insurance is a much better option for long-term savings than an employer matched 401(k). Life insurance can yield much more ROI, and faster. If you want to be contributing, or are already contributing, more into your 401(k) than what your employer can match, it might be the time to start looking towards life insurance. Life insurance also offers much more flexibility than a 401(k), because you don’t have the pay a penalty to withdraw funds before you reach 59 years of age. You can withdraw some of your cash value for retirement, and still have a significant death benefit go to your beneficiaries when you pass away.
- Be your own lender. You can treat your cash value like a bank, and use it to make large purchases such as a car, boat, etc. Simply withdraw the money when you need it and pay yourself back by continuing to pay your premiums. You can get around having to pay interest to a motor company or other lender.
- Secure funds for long-term health care. Unfortunately, many people have witnessed the health of their parents and/or grandparents deteriorate as they’ve gotten older. Some need to be placed in nursing homes, or just need to see doctors and specialists on a regular basis. The cost of this care can quickly eat away at the estate and take away from inheritance money. Life insurance can act as a save guard to that, and the cash value can be withdrawn to pay for these expenses.
- Cover college costs. You can use your cash value to fund you children or grandchildren’s higher education. Unlike a 529 plan, you don’t have to pay a penalty to withdraw funds for non-tuition-related expenses. If your child decides not to go to college, or if the options for higher education change in the future, you won’t have to give up any of the hard-earned money you put into the account.
Life insurance, combined with a proper estate plan, can ensure that the future generations of your family will be taken care of long after you pass away. They won’t have to worry about your long-term care or funeral expenses. And by using your own cash value to pay for large purchases, you can eliminate debt, and put more money into other savings options.
If you need help in determining what life insurance company to work with, attorney and financial planner Greg DuPont would love to help you. Call our office today at 614-408-0004 to schedule a consultation. The sooner you call, the more you can save.