Life insurance provides a strategy to protect your assets against premature liquidation. If a loss from death occurs, the assets you’ve worked hard for may face early liquidation.
While health insurance protects you if you are injured or become ill, and other insurances protect against damages or loss of an asset, life insurance protects your beneficiaries from financial loss when you pass away.
Life insurance is worth the investment, even if you’re young and in good health. Above all, if someone depends on you financially, life insurance can help reduce financial hardship, provide a way to leave an inheritance, fund funeral expenses, and more. In addition, here are six reasons why you may need life insurance, depending on your situation:
If you own whole life insurance, you can borrow against the policy’s cash value (without tax consequences) to supplement your retirement. You will still have some remaining death benefits if you don’t use all of the cash value or surrender the policy. Talk to your insurance professional to understand the details of using life insurance for retirement funding. In order to understand how it may or may not be an option for you, given your situation.
Adding a rider to a life insurance policy can help pay for long-term care. Therefore by using a particular dual-insurance product, long-term care combines with life insurance so that the cash value can help cover long-term care costs. If the unused cash value is available at death, the policy pays a death benefit to beneficiaries.
Standard on many terms and whole-life insurance contracts, ‘living benefits’ allow those with a life expectancy of fewer than twelve months to access a portion of the death benefit before death.
If you have a large estate, you want to ensure that the estate remains ‘intact’. This help to ensure beneficiaries don’t have to liquidate assets to pay estate taxes. It can help pay estate taxes and settle outstanding debts while not jeopardizing the estate’s assets. It also provides an easy way to remove beneficiaries from dealing with these situations. In conclusion, using life insurance in estate planning involves working with an attorney and financial and tax professionals to determine if this is appropriate for your situation.
If you are a business owner and plan to pass on the business to a family member or other key employees, life insurance can be part of the purchase agreement by the intended new owners. Using life insurance in this way should involve a tax professional. In addition, this will help to fully understand IRS code implications and an attorney to help ensure the business succession planning is done correctly. Business succession planning involving life insurance is often part of the business owner’s retirement or estate plan.
If you’re a parent or grandparent, life insurance can fund part or all allowable education expenses for the insured (child). This can be done without tax consequences, assuming interest applies to the cash value. If the child doesn’t use it for education funding, you give them the gift of life insurance. In other words, this can be for themselves or their beneficiaries.
In conclusion, check with your financial professional or the life insurance carrier about turning the policy ownership over to the child when they’ve reached adulthood since they must own the policy when they’re an adult.
This article is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not intended to provide specific legal or tax advice and cannot be used to avoid penalties or to promote, market, or recommend any tax plan or arrangement. You are encouraged to consult your personal tax advisor or attorney.
The source(s) used to prepare this material is/are believed to be true, accurate and reliable, but is/are not guaranteed.
Guarantees are backed by the financial strength and claims paying ability of the issuing company.
Policy loans and withdrawals will reduce available cash values and death benefits, and may cause the policy to lapse or affect any guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject ordinary income tax. Withdrawals are generally income tax-free, unless the withdrawal amount exceeds the amount of premium paid. Tax laws are subject to change. Clients should consult their tax professional.
For those who are looking for financial advice, we realize the available options are many and deciding who to work with is a challenging problem. At Sterling Oak Wealth Management, we know that it is your retirement, and you should have control over it. We offer our experience and knowledge to help you design a custom strategy for financial independence. Contact us today to schedule an introductory meeting!