When people think of life insurance, what usually comes to mind is settling the deceased's final expenses and providing financial support for their beneficiaries. Although these are the most common uses of life insurance, cash value, or whole life insurance, they offer financial resources to other situations. Here are six cases where using life insurance may be appropriate:
Retirement funding- If you own whole life insurance, you can borrow against the policy's cash value (without tax consequences) to supplement your retirement. You will still have some remaining death benefit as long as you don't use all of the cash value or surrender the policy. Talk to your insurance professional to understand the details of using life insurance for retirement funding and how it may or may not be an option for you, given your situation.
Pay for long-term care- Adding a rider to a life insurance policy can effectively pay for long-term care. By using a particular dual-insurance product, long-term care combines with life insurance so that the cash value can help cover long-term care costs. If the unused cash value is available at death, the policy pays a death benefit to beneficiaries.
Provide benefits if you're terminally ill- Standard on many term and whole-life insurance contracts, 'living benefits' allow those with a life expectancy of fewer than twelve months to access a portion of the death benefit before their death.
Estate planning- If you have a large estate, you want to ensure that the estate remains ‘intact’ and beneficiaries don’t have to liquidate assets to pay estate taxes. Life insurance can pay estate taxes and settle outstanding debts while not jeopardizing the estate's assets. It also provides an easy way to remove beneficiaries from dealing with these situations. Using life insurance in estate planning involves working with an attorney and financial and tax professionals to determine if this is appropriate for your situation.
Business succession planning- If you are a business owner and plan to pass on the business to a family member or other key employees, life insurance can be part of the purchase agreement by the intended new owners. Using life insurance in this way should involve a tax professional to fully understand IRS code implications and an attorney to help ensure the business succession planning is done correctly. Business succession planning involving life insurance is often part of the business owner's retirement plan or estate plan.
College funding- If you’re a parent or grandparent, life insurance can be used for funding part or all allowable education expenses for the insured (child) without tax consequences, assuming interest applies to the cash value. If the child doesn’t use it for education funding, you give them the gift of life insurance for themselves or their beneficiaries. Check with the life insurance carrier about turning the life insurance policy ownership over to the child when they’ve reached adulthood since you’re unable to own the policy when they're an adult.
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There are other situations where the cash value in a life insurance policy may provide financial resources. If you have questions about life insurance, please contact our office.
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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual.
Riders are additional guarantee options that are available to a life insurance contract holder. While some riders are part of an existing contract, many others may carry additional fees, charges and restrictions, and the policy holder should review their contract carefully before purchasing. All guarantees and benefits of the insurance policy are subject to the claims-paying ability of the issuing insurance company. They are not backed by the broker-dealer and/or insurance agency selling the policy, or any affiliates of those entities other than the issuing company affiliates, and none makes any representations or guarantees regarding the claims-paying ability of the issuer.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
This article was prepared by Fresh Finance.
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