Life Insurance Advantages
The purchase of a life insurance policy will never make most peoples’ top ten list of favorite things to do. After all, there is a lot not to like in the whole process of buying life insurance. With hundreds of products from which to choose, it can be confusing. Insurance contracts can be complex and mind numbing. Some insurance agents can be annoying. And, for some people, paying premiums can be irritating. Granted, it’s not a picnic, but when given the opportunity to step back and really look at the advantages of owning life insurance, most people will agree that it ranks up there with their very best financial decision.
Anyone who owns a life insurance policy understands the reason why they bought it. For most people, it is because they want to provide for the financial security of their family in the event that they should die prematurely. The biggest advantage of life insurance is that it can accomplish just that in a way that no other financial vehicle or strategy can. As significant as that is, it is sometimes not enough to convince some people of the true value of life insurance. Some people aren’t convinced until they see life insurance in action, such as when a friend or loved one dies and the survivor receives the death benefit proceeds. Fortunately, it doesn’t take the death of loved one, to truly understand the advantages of life insurance.
The Advantages of Owning Life Insurance
It Creates an Instant Estate
We work a lifetime to accumulate the assets that will pay for all of our essential needs: a college education for our children, a comfortable home, a pleasurable lifestyle, a secure retirement. Sometimes that lifetime is cut short, but if a family is left behind, those essential needs don’t go away. When a primary breadwinner dies, there are typically additional financial needs that need to be met, such as final medical expenses, funeral costs, legal fees, and outstanding debts. Life insurance creates and instant estate at moment it is needed and it leaves a legacy of love, comfort and certainty.
It has a Triple Tax Break
If you dislike taxes as much as most people, then you should love life insurance. No other financial instrument has the host of tax incentives that life insurance has and you don’t have to wait until after you die to benefit from them although that is when the biggest tax benefit is realized via a tax free death benefit. Additionally, cash value life insurance allows you to accumulate funds without being taxed currently on the earnings. This can be significant for cash value accounts that are left to accumulate for many years. The difference in earnings can amount to thousands of dollars due to tax savings. Finally, you can enjoy your cash value accumulation while you are living through tax-free withdrawals to the extent that you withdraw just your principal. Withdrawals from cash value life insurance consist of your principal first, and then your earnings which are taxed as ordinary income. Or, you can borrow from your cash value account, and because this would be considered a loan, it is not currently taxable. All tax issues regarding your life insurance policy should be discussed with a financial professional so you understand all of these implications.
It’s a Capital Source
Life insurance can be a tremendous funding vehicle for many of your essential needs while you are alive. The ability to earn competitive rates of return without the encumbrance of taxes gives life insurance some unique advantages as an accumulation vehicle. Life insurance owners have used their cash value accounts to fund home purchases, college expense, and business start-ups. The cash value accumulation inside a life insurance policy can also be a significant source of supplemental retirement income.
It’s Cost Effective
Life events can be very expensive, especially since many of them occur sometime in the future when the cost of money inevitably increases. The cost to settle a large estate can be significant and the cost for a business to buyout surviving family members can break the business. Life insurance is the only method for paying for these very expensive future events using discounted dollars. For, literally, cents on the dollar, a college education can be paid for, a home mortgage paid off, an entire estate passed to heirs, or a business interest acquired.
It’s easy to dismiss life insurance as just one more thing on a checklist of financial obligations. But, if you are going to take the time and trouble to put the vital piece of your financial puzzle in place, you may find it very worthwhile to take a moment and consider how the advantages of life insurance can work in your favor. Perhaps the greatest advantage of life insurance is the peace of mind that it provides while you enjoy all that life brings you. That’s hard to quantify in monetary terms, but, for most people it is priceless.
*The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable by having the policy approved. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.