If you ask a financial advisor, the first thing he or she would ask is “are you insured?” Life insurance is an important component of financial stability, for untimely death, but also for other aspects of future financial stability; with the right financial planning and policy. It can help in funding for college education, pay up loans – mortgages, personal loans, and credit card bills, death expenses including estate and death taxes, in keeping a business stable or passing it to partners and heirs, and to leave a legacy or trust to children or grandchildren.
The major importance of life insurance is to provide financial security to the family after death. The loss of income from your passing, especially if you are a sole income provider, can cripple the family financially. Get sufficient coverage to ensure they’d be able to cope with monthly bills and provide for their basic needs.
Aside from providing financial security for your family. You also unburden your family from burial and other expenses incurred upon death such as hospital bills, funeral, and burial costs as well as estate taxes and legal costs. Buying final expense life insurance guarantees your family is unburdened from financial obligations of losing you.
Saving for college is a high priority for every parent; with the rising cost of higher education and the high-interest rate of student loans. You wouldn’t want your child to be dealing with loan payments after graduating and starting his or her first few years of adult life. Life insurance is a feasible option via cash value. It can support your other savings options. Securing ample fund for college makes sure that he or she will start a debt-free life after college.
Pay off Debts
Life insurance secures your family from debts including mortgages, personal loans, and credit card payouts. It offers security for the family to be debt free as they transition to a life without you as their sole provider. You have the option also of paying out debts from the accumulated cash value. Insurance gives you many options for financial freedom as you move forward to your golden years and enjoy the fruits of your labors.
Life Insurance For Business
Business obligations require you to be insured to guarantee that all the work you’ve done to establish the enterprise will not all go to the bin. Business loans, credit cards bills, and operational costs are heavy burdens to pass on to the next owner or a partner. If the business is a partnership, each partner should have a life insurance as leverage for the enterprise if one of the partners dies.
Life Insurance as Investment Option
Life insurance can be as straight as an arrow in providing security upon untimely death. But now, a variety of insurance products offer investment options that allow you to invest and earn dividends; accumulate cash value over time that you can withdraw from and provide passive income on your retirement. The dividends or interests earned from the different investment options are tax-deferred. These dividends and cash value also act as extra protection from any future financial burden or disaster.
Life Insurance As Wealth Leverage
If you think only the average Joe’s need life insurance, think again. Individuals and families in a higher income bracket use life insurance to leverage their wealth, secure trust for their children and grandchildren; and provide extra cash to pay for estate taxes and legal obligations.
- Estate Tax Payout – Federal law requires payment of estate taxes for estates exceeding $5,340,000. Unfortunately, not all individuals have that kind of cash on hand to pay for an estate tax of 40%. To get through the dilemma of paying out the tax, life insurance acts as the leverage to ensure estate taxes are paid and assets can be distributed to heirs. If estate taxes aren’t paid, there’s no way to distribute or sell the deceased’s properties. Life insurance cashout pays for the estate tax and keeps all assets intact until they can be distributed to heirs or pay for other loans and liabilities.
- Irreversible Life Insurance Trust – this kind of life insurance product’s purpose is to protect an estate. It is not part of the estate because it’s not owned by the insured, therefore, resulting to decrease estate taxes. A trust bank or company manages the trust that pays for the insurance premiums and upon the death of the insured distributes the benefits to beneficiaries. This is another method of protecting businesses, farm, and other real properties as well as art collections and stock portfolio eliminating the option of selling them off.
- Build Estates for Grandchildren – Also called Generational Split Dollar, wealthy grandparents can establish a form of life insurance trust to give their grandchildren security. This works by giving a loan to the children (parents) for the purpose of creating estates for the grandchildren. This loan is given to buy life insurance on the parents’ lives that’s bought through a trust – that’s being repaid upon the death of the children (parents). The Generational Split Dollar allows for the loan to have a deferred payment scheme rather than paying it during the grandparents lifetime.
- Setting Up Special Needs Trust – This is for protecting special needs children. A trust can be created, to protect and ensure that all the financial needs of the child with special needs are met for a lifetime. Life insurance policy strategically provides cash for an estate and protects other assets by naming the trust as the beneficiary. This increases the value of the estate through automatic tax-free benefit for the child’s trust. Money in the trust is secured from creditors, lawsuits and unauthorized individuals as well as guarantees government benefits for the child including social security earnings.
There are so many reasons why an individual should buy life insurance. It is for protection, income generation, security for the future generations and for people with special needs as well as good leverage for wealth management and starting a business. Explore all your options, understand each products’ pros and cons as well as fees and charges.