HOW TO USE YOUR LIFE INSURANCE POLICY AS A FINANCIAL PLANNING TOOL
As we have discussed, some life insurance policies allow you to invest in various ways as well as pay your premium. Therefore, depending upon the type of policy you choose, you might be able to use your life insurance policy as a tool to help you financially over the years that you hold the insurance policy.
A. Whole Life:
As mentioned before, a whole life policy provides you with a small cash value investment that can be borrowed against once the policy has been held for a certain amount of time (is vested).
B. Universal Life:
The same is true with a universal life insurance policy, though you will have more investments from which to choose. In addition, a universal life policy will allow you to access your cash value to pay your future premiums, while still leaving your current income untouched. This can come in handy during times of financial struggle. The only disadvantage will be that your earnings will not accrue as quickly, but in some cases, you might also not lose money as rapidly if the stock market fluctuates a lot. Determine how willing you are to tolerate risk when it comes to your nest egg for your family in the event of your untimely death. You will then be able to decide if universal life insurance is right for you.
C. Variable Life:
With a variable life insurance policy, you have several options related to investing and earning cash on your insurance policy premiums. Life insurance doesn’t have to be just plain old term insurance anymore with these policies. You will have a number of options to explore with a qualified financial advisor to be sure you are getting the best deal for you and your family in the event of your death.
D. Tax Benefits:
Your life insurance policy proceeds will be tax-free. Unless you accumulate upwards of $1.3 million, your money will not be taxed once your beneficiaries receive it. However, keep in mind that this is current tax law, which can change over time. As a rough guesstimate, if you assume that your estate will total over $1 million by the time you pass away, your heirs will have to pay estate taxes. If that is the case, you might want to take out a survivorship life insurance policy using a trust to protect your heirs from having to pay those estate taxes.
E. Business Uses:
Businesses often use life insurance as necessary financial planning tools to protect their business. If someone integral to the business dies, the business could be in jeopardy until they find someone to take his or her place. Life insurance helps get them through the crisis of losing the person and their special skills. This is just one example of how life insurance can be used for business purposes. Naturally, if you are self-employed or run your own business, you will want to be sure to be adequately insured so that the business can hopefully carry on without you and continue to earn money for your heirs, or will payout well until they can replace the lost income from your business in some way.
More than that…
A partnership with several partners may want to buy out a partner’s share of the business if he or she passes on. Sometimes, a person is no interested in the business, nor can they provide expertise, so a contract is worked out ahead of time to pay the spouse cash for their interest in the business. Life insurance providing tax-free funds to fund that contract. When you choose a type of insurance, Make sure you consult with a qualified financial expert with experience in selling insurance to businesses to protect assets and interests in order to be sure that you will be getting the best deal for your family. Depending on whether you want a policy that has cash value against which you can borrow, or an investment-type policy where you control how the monies are invested, your life insurance might get you out of a difficult financial situation some day. It can also help you plan for your family’s future, with or without you.