If you have a whole life policy and are up to date on your premiums, there are numerous financial benefits that most people never consider. Keep reading for information on how you can take advantage of these while you can still enjoy your money.
Collateral for loans
A whole life policy builds cash value that accumulates and becomes an asset in the eyes of your banking institution. You can use this cash value as collateral for a personal loan. It doesn’t matter what your purpose is – you can use the money for travel, home improvements, medical expenses, or to invest in a new business. Bank on Yourself notes that policy loans may also be available.
Retirement
You might not realize it, but your permanent life insurance can supplement your retirement income. The cash value of these policies won’t inhibit your ability to receive Medicare. If you’re ready to cash out, you have options that include receiving an advance payment or selling your insurance policy for cash. These funds can be used to pay for nursing home care, although your survivor’s death benefits will be reduced if you borrow and eliminated if you choose to sell your policy outright.
College savings
One of the greatest benefits of life insurance cash value for families with college-age children is that this money isn’t counted when determining financial aid eligibility. There aren’t any restrictions on borrowing against your life insurance to help pay for your child’s college tuition or even housing expenses. And with the cost of college rising every year, you may have to get creative in how you pay for higher education. According to the National Center for Education Statistics, the cost of higher education has more than doubled for both private and public institutions since the 1980s.
Ensure the longevity of family business
In addition to taking care of the financial needs of your family upon your death, your life insurance policy can be used to ensure your professional legacy lives on. If you’re a small business owner, you can earmark a certain amount of funds to help support your business. Likewise, your life insurance can be used to provide a legacy gift for a favorite nonprofit charity or organization. You might, for instance, designate a college or university as a beneficiary to fund scholarships for low-income students. Kiplinger reports that you can work alongside school administration to define the criteria needed for students to receive funds.
Funeral expenses
A life insurance payout can also help your family deal with the
Tax savings
Permanent life insurance policies enjoy tax-deferred growth. What this means is that it can increase in value each year and is not subject to taxation until withdrawal. Another major tax advantage is dividends. In most cases, life insurance dividends don’t have to be claimed on your tax return – it may sound like a loophole, but these payments are simply considered a policy premium refund. Dividends may become taxable, however, if their value exceeds your yearly premium payment. You can prevent this possibility by using dividends to pay your premium or to increase your coverage amount. If you’re considering borrowing against your policy, cash withdrawals also have tax advantages, according to NerdWallet.
Types of cash-value life insurance
Shopping for insurance can be confusing. There are almost as many types of policies as there are people that need them. The two primary types of permanent life insurance policies are whole and universal. They are similar in that they don’t expire. A whole life policy is one designed to have a consistent premium and specified death benefit for a predetermined time frame. Once paid in full, it remains in force for the duration of your natural life. A universal, or adjustable, life insurance policy may be increased or reduced at any time. Investopedia does a great job of explaining the differences in more detail.
What to expect when applying
Before applying for life insurance, it’s a good idea to know what information you’ll need to give and how you can receive lower premiums. For example, you will likely be asked to take a blood test. This allows the insurer to issue the correct rate for your policy based on the results. Your overall health will be assessed, including blood pressure; BMI; glucose and cholesterol levels; and signs of tobacco, nicotine, or drug use. If your levels are normal and there are no traces of tobacco, nicotine, or drugs, your chances of receiving lower premiums are greater.
You don’t have to wait until you become the dearly departed to utilize your life insurance investment. The cash value of your policy is a viable source of funds whether you want to start a business, pay for college, or supplement your income during your golden years.
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