Thursday, July 12, 2018

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.

--------------------------------------------------------

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. 


No comments:

Post a Comment

Note: Only a member of this blog may post a comment.