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Why do I need life insurance?

Most people understand the basics of life insurance: the policy provides a payout in the case the insured passes away. However, life insurance can provide additional benefits that many are not aware of. Below are some of the other benefits of life insurance.

1. The living benefit can be as valuable if not more valuable than the death benefit. Times have changed and so have our options on how to use life insurance; gone are the days that only the beneficiary benefits from these policies. Living benefits allow the policyholder access to funds in case of chronic or terminal illness.

2. Life insurance can help families fund and/or reach multiple financial goals at the same time. No matter whether your child goes to college, needs a car, or gets a full scholarship and just needs a down payment for his/her first home, one policy has the flexibility to funding any or all of these choices simultaneously.

3. Life insurance builds a legacy and has generational effects. It creates an additional tax-free income stream that is not subject to the market, assuming you are using a fixed permanent life insurance product. And it can be used to maximize pensions or help create a person’s own self-funded pension.

4. It can preserve the family home and/or lifestyle. When someone dies unexpectedly, especially within young families, life insurance can provide financial support for the living spouse or partner and can be used to retain the home and keep the family financially afloat.

5. Life insurance can offer unique tax advantages that are not found with other strategies. The ability to avoid taxes on the growth of the cash value and access the money before the age of 59 1/2 can make this a great tax shelter for the higher income earners.

Article by Erick G. Colon.

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Life insurance permanent policies contain exclusions, limitations, reductions of benefits and terms for keeping them in force.  Accessing cash values may result in surrender fees and charges, may require additional premium payments to maintain coverage, and will reduce the death benefit and policy values. Loans are income tax free as long as policy is not a “modified endowment contract” (MEC) and policy must not be surrendered, lapsed, or otherwise terminated during the lifetime of the insured, and withdrawals must not exceed cost basis. Partial withdrawals during the first 15 policy years are subject to additional rules and may be taxable. Excess policy loans can result in termination of a policy.  A policy that lapses or is surrendered can potentially result in tax consequences. You should consult a qualified tax professional for tax advice on your own personal situation. 

Optional living benefit riders and benefits may be subject to eligibility requirements, additional premium requirements and/or minimum or maximum coverage amounts.  Availability and rider provisions vary by each state.