A common complaint about life insurance is that you’re paying for something that only provides a return if you die (similar to how many feel about homeowner’s insurance). But what if you could have a death benefit AND tap into a portion of the cash value you’ve contributed over the years while you’re still alive? While that doesn’t exist with term life insurance policies, fortunately it does with life insurance that has cash value.
So, What's the Difference?
A term life policy provides a specific amount of coverage over a given period of time. You can think of it as similar to “renting” life insurance. If you outlive your policy, your coverage expires, and no money is returned to you.
Cash-value policies (also known as permanent, whole life or universal life) provide a death benefit just like term insurance does, but they ALSO include a growth component designed to increase in value over time. It’s more like owning your policy, because as long as you continue paying for it and you pay on time, it never expires, and your beneficiaries will be able to claim the death benefit when you pass.
Here are three reasons to consider cash-value life insurance:
Tax-deferred growth. As you pay your permanent life premium each month, your policy accumulates value. This grows tax-deferred, which means when you pass away, your beneficiaries won’t pay taxes on the policy’s payout.
Ability to take a loan. Besides tax-deferred growth, the policy’s cash value could be useful as an option to borrow against. While generally a last resort, a policy loan could be used to pay for college, emergency medical expenses, or cover a down payment on a home. However, there are some important caveats to consider before you take a loan from your policy. Read about them here, or let’s talk about it.
Potential growth outside the market. We all know the stock market can be volatile, and if it’s down a few days in a row, it’s usually not a big deal, historically. But recessions do happen, which can disrupt even the best-laid retirement plans. While not a suitable substitute for a comprehensive retirement plan, a whole life policy can complement your retirement assets by serving as a stable source of growth that doesn’t rely on the stock market.
While cash-value life insurance policies have some practical benefits, they’re not appropriate for everyone. Want to learn if it’s right for you? Please schedule some time with our office to review your current and existing coverage.
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Life Insurance Basics - Continued!
September 14, 2021