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Exploring the Many Financial Benefits of Life Insurance Policies by Jim McKinley

Here is a great guest article from Jim McKinley.

Image courtesy of Pixabay

It’s commonly assumed that life insurance has only one benefit: payment to the beneficiary. But did you know life insurance policies offer more than payment upon death?  In fact, there are a number of important potential gains from having a life insurance policy.  Here are just a few.

Two types of policies

Forbes points out that if you have people in your life depending on you - your life partner, children, or even employees - you should have life insurance.  But before you can understand the many ways a life insurance policy can benefit you, your family, and others, it’s important to recognize there are two basic types of life insurance policies.  As NerdWallet explains, there are term life insurance policies and permanent life insurance policies.  Term life insurance policies only pay upon death, but permanent life insurance policies offer a variety of options, thanks to a cash-value component.  That component allows the policy owner to build up tax-deferred savings over time.  Under the umbrella of permanent policies falls whole life, variable life, and universal life.  If you’re on the fence about whether to purchase a permanent policy or not, some experts suggest asking yourself if you want coverage for your entire life.  If the answer is “yes,” then a permanent policy is for you. 

Term insurance, as explained by Money Crashers, is essentially a stripped down version of life insurance.  It lacks the investment component, and although premiums are lower during the covered term, those premiums typically rise substantially when the term ends.  Some experts compare term insurance to a fast food hamburger, noting it’s simple and common.  However, those qualities don’t mean it’s the best option for you, and term policies only payout when the policyholder dies.

Remember that life insurance policies serve in part to compensate when someone passes away.  But the right kind of life insurance can also provide financial security to a policyholder during life.  The following benefits of permanent life insurance can be enjoyed while you’re living:

Tax-deferred growth: The fact that a permanent life insurance policy adds value over time is a big plus.  Basically, your policy’s value continues to grow, with gains added to gains, however long you own it.  There is no tax owed unless funds are withdrawn. 

Tax-free dividends:  Another boon from certain permanent life insurance policies is tax-free dividends.  Those dividends don’t have to be reported on the recipient’s income taxes so long as they stay below the net amount of premium paid into the policy.  Dividends can often be used toward purchasing additional insurance or toward paying policy premiums.

Policy loans:  You can use the cash value in a permanent life insurance policy as collateral for a policy loan.  Loans from your life insurance policy are another tax-free benefit, and they are also free of surrender charges.  

Cash withdrawals:  If a permanent policy provides sufficient cash value, you can make withdrawals.  These withdrawals are usually tax-free up to the amount the policyholder has deposited via premium payments. 

Investment portfolio:  Are you looking for a way to bolster your investment portfolio?  One suggestion is to purchase a whole life policy.  It’s a great option for those with other investments meeting their growth components and whose tax-advantaged contributions are maximized. 

Selling a policy:  A permanent life insurance policy can be sold to help supplement retirement income, pay for medical expenses, cover long-term care, or cover other financial crises.  There are certain requirements you must meet in order to sell your policy.  For example, your policy will need to have at least $100,000 of face value. 

Benefits abound

There are a wide variety of important benefits that come from well-chosen life insurance policies.  In addition to a death benefit, you can gain while you’re still alive.  If times get tight, you have a reliable safety net for you and your loved ones.  Selecting a permanent life insurance policy can provide peace of mind and security.

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Jim is a retired banker with almost 30 years of experience. He created MoneywithJim to share his advice and other resources on a variety of financial topics. 

Planning and Paying for Long-Term Care

Here is a guest article from June Duncan:

Planning and Paying for Long-Term Care

People are living longer than ever, with medical advances staving off disease-based fatalities and increased screening technologies helping identify illnesses sooner. Worldwide, there are close to one billion people over the age of 60. This number is poised to continue its growth, but although we are living longer, we are not necessarily living healthier lives.

Diabetes and heart disease are still ravaging older adults. While fewer people may be dying from these diseases, the future may mean a longer life with much more medical intervention. Because of these trends, long-term care is increasingly becoming a potential reality for many people. Long-term care is a broad category of assistance that a person needs for diseases and conditions that aren’t likely to be resolved. This type of care can include assistance with daily tasks, such as bathing, and moving about to feeding and administering medicine.

Planning for Long-Term Care Needs

As the potential need for long-term care increases across the population, it is crucial to take steps to identify if long-term care is in your future and plan accordingly. According to some reports, about 70 percent of the population is going to need long-term care. For some, the risk of needing this care can be reduced through health-focused actions.

Identifying your risk

The first step in reducing the risk of needing care is to assess your lifestyle and your health. Many of the so-called “lifestyle diseases,” such as cardiovascular disease, diabetes, and certain cancers, are the result of poor health habits. Smoking, overeating and sedentary living increase your risk of having poor health in your older years. While some of these conditions can be managed with pharmaceuticals, the resulting medicated lifestyle is one that often needs outside support.

To some extent, you may be able to reduce your risk through pursuing natural longevity through better nutrition, abstaining from harmful activities, and enjoying regular exercise. You can reduce your risk for developing Alzheimer’s, for example, by keeping your mind active well into adulthood. Challenge yourself to learn a new language, play brain games and puzzles, and read as a hobby.

Paying for Long-Term Care

Some people may need care regardless of how much they try to fight its need. As people’s lifespans continue to grow, there may eventually be a universal need for long-term care, as the human body can become frail with advanced age. Because it may be inevitable and its early need is not entirely controllable, it is wise to include long-term care in your financial and retirement planning. There are a few options for planning, including saving and buying long-term care insurance.

The cost of long-term care

Long-term care can be expensive. Depending on the level of care you need, it can mean that you are hiring a full-time, 24/7 caretaker. While a home health aid will cost around $20 an hour in today’s dollars, nursing home expenses can easily reach $8,000 to $10,000. You cannot sit back and count on needing only a minimal amount of care. Increased longevity can make a nursing home stay last several years, which can drain even the most robust bank accounts.

How to pay for long-term care

Long-term care insurance is an option to mitigate the risk of these expenses, as is a variety of combination products that blend insurance with cash-value benefits and annuities. In general, long-term care insurance premiums increase as you age, and some policies cap the payout amount and duration, such as $100 a day for three years.

Another source of paying for future care is Medicaid, which according to many financial planners, is an increasingly-used source. This government funding for senior medical care only kicks in after you’ve spent all of your assets, so it is the program of last resort for seniors who live lives that outpace their savings.

When determining how to maximize savings, selling your home and downsizing may be a way to repurpose your assets for eventual long-term care needs so that you can privately fund as much of your need as possible. When you are paying out of pocket, you will have more options over where you choose to live. It’s often easier to sell your home before your urgent need arises.

You are never too young or too healthy to begin considering how you will live your senior years. Planning today can put you in better financial shape in the event you need long-term care.

June is the primary caregiver to her 85-year-old mom and the co-creator of Rise Up for Caregivers, which offers support for family members and friends who have taken on the responsibility of caring for their loved ones. She is passionate about helping and supporting other caregivers and is currently writing a book titled, The Complete Guide to Caregiving: A Daily Companion for New Senior Caregivers, due out in Winter 2018.

Photo Credit: Pixabay

Your time is valuable!

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