Life Insurance as a Financial Planning Tool

Life Insurance as a Financial Planning Tool

Life insurance offers often overlooked benefits for financial planning

Many merely consider life insurance as a necessary expense that gives more than peace of mind only at death. While true with respect to term life insurance, other types of more permanent life insurance have savings components that one can use as a financial tool while alive.

Although term life insurance carries a much lower monthly premium, as mentioned earlier, it only stays in force for the relevant "term." Once that period ends, you must renew the insurance for a new term — often at a higher price — at a cost that can become prohibitive with age, potentially you without insurance at the end of your life.

Term life insurance is particularly useful for younger families, who want to ensure a policy will pay off a mortgage or fund a child’s college education in the event the primary earner dies unexpectedly. Often, the only way those just starting out in life can afford such substantial coverage is with the lower monthly payments term life insurance offers. In such cases, they should be careful to match the length of the policy to the amount of time they expect the need for coverage to exist, i.e., 20 years to ensure it pays for college or 30 years to cover a 30-year mortgage.

Whole life insurance policies are so-named because they offer coverage for your whole life. As long as the policy is active, these policies provide a fixed death benefit — meaning it will remain the same as long as the policy is active — which is especially useful for those who need insurance for their entire life. Whole life policies also can provide for level or fixed periodic premiums. These features allow you to —

  • Avoid costly or prohibitive premium increases as you get older;

  • Get cash in an emergency. Policyholders can withdraw the cash value to pay for retirement, a loved one's education or other life expenses. If you cancel the policy and withdraw the money, however, be prepared to pay income taxes on anything over your premium payments. On the other hand, taking out a loan from the policy is tax-free, although it may reduce the policy's death benefit. Given the potential tax and/or policy issues involved with such withdrawals, it is generally wise to do so only in an emergency;

  • Use the cash value to pay the premiums so the policy does not lapse if you face financial troubles and can't afford to make the premium payments;

  • Create liquidity to pay estate taxes and other death expenses; and

  • Protect your assets throughout your life in states with laws that that protect the cash value and death benefits of life insurance policies from creditors' claims.

With some policies paying a tax-deferred return of 4% or more, many find the forced saving aspect of whole life policies attractive. While there are some who believe the wiser choice is to "buy term and invest the difference," this assumes (1) you actually invest the difference, and (2) that the economy will continue to perform as expected.

Life insurance is an often-overlooked tool for saving money, protecting assets, minimizing taxes and ensuring your loved ones will have financial resources when you are not around. There is a wide variety of life insurance policies; therefore, it is important to get as much information as possible to ensure you choose the right policy for your situation.

The St. Louis life insurance professionals at Senior Health Solutions, LLC have the extensive knowledge of available products and the experience in counseling individuals to ensure you get all the information you need. To discuss which type of life insurance product works best for you, contact us at (636) 244-4415 or online. If you cannot come to us, we can come to you.

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