Life insurance is, without question, one of the most unique financial tools ever developed. Life insurance lets you create an estate – a reservoir of funds – to help protect and sustain your family and/or business following your death. But life insurance does so much more than simply provide financial security in the form of a death benefit. You can also tap into the benefits of permanent life insurance while you are still alive.
Most importantly, life insurance provides your heirs and/or business immediate cash at death – often when it is needed the most. Income tax-free dollars can be used to pay final expenses, estate taxes, legal and administrative fees or cover unpaid medical costs. The financial resources provided by life insurance can eliminate the need to sell your home or appreciated assets, or go into debt to cover these costs. In many cases, assets sold to meet financial obligations receive less than their market value.
A Tax-Advantaged Savings Alternative
In addition to providing an income tax-free death benefit for the protection of heirs or your business, life insurance can also provide you with a systematic way to accumulate assets. Permanent forms of insurance — whole life and universal life — generate tax-deferred growth potential that can be excellent alternatives to other commonly used savings strategies. Probably the biggest benefit of using life insurance to accumulate assets is that it’s self-completing: if, because of your premature death, you aren’t around to achieve your accumulation objectives, your life insurance policy’s death benefit does it for you.
Living Benefits for You
Once you’ve built up your policy’s cash value, you can borrow or withdraw from it to achieve various financial goals, be they personal or business-related. One common personal use of accumulated cash values is additional retirement income. Because you can borrow from your cash value income tax-free**, it makes an excellent supplement to social security or other savings you may have. Of course, any policy loans will reduce the ultimate death benefit payable to your beneficiary.* A second common use of cash values is as collateral to obtain credit.
Living Benefits for Your Heirs
Most people don’t purchase life insurance for themselves - they purchase it to provide “living benefits” to their heirs or to help maintain their businesses. For example, life insurance proceeds are often used:
to repay outstanding mortgages
to create funds for college expenses
to help enhance or ensure a surviving spouse’s standard of living
to assist in effecting a smooth transition of a business to heirs or associates
Competitive and market forces have brought about numerous and innovative changes to life insurance over the years. Today, whether you need term or permanent protection, fixed or adjustable premiums, or individual or joint coverage, you can rest assured there’s a policy available that is designed to fulfill your specific objectives.
The Advantages Are Clear
Life insurance can be an important element in your risk management program. Life insurance provides a foundation of financial security for you, your family, your associates, and your business.
All guarantees are based upon the claim-paying ability of the issuer.
*Accessing cash values may result in surrender fees and charges, may require additional premium payments to maintain coverage, may reduce benefits, and will result in a reduction of policy value.
** As long as premiums are paid and the policy doesn’t lapse. Assumes contract is not a modified endowment contract under IRC §7702A.
Winfield C. Greenwood, RFC® is the owner/founder of Redstone Financial Group, LLC, an independent financial services firm based in Las Vegas. He shares his expertise on business and personal financial planning with the RJ every week. Contact him at (702) 475-6363, firstname.lastname@example.org, or connect via Facebook or Twitter.