Six Potential Uses for Life Insurance
Income Replacement: Anyone who is in their core earning years should purchase life insurance if they have someone(s) depending on them. In your untimely death, your loved one(s) can use a cash payout to pay their mortgage to ensure they can stay in their home; they can use the cash towards college tuition, daily bills etc. Make sure your loved one(s) are taken care of financially in the event of your untimely death.Though the risk is small, the pain point is high if you are not insured.
Retirement Planning: Life insurance is not an investment, but it does have a savings component. Think of life insurance as another tray – put your money into tax-deferred vehicles like your 401(k) or your Roth IRA. Life insurance can be a conservative piece of your overall investment portfolio that allows you to invest dollars on a tax-deferred basis. And you can control the flexibility, unlike the other investment vehicles.If properly created and funded, you can withdraw tax-free income over a period to supplement your retirement. Tax free income in retirement is going to be more important each year. Life insurance may also be utilized to replace income from your Social Security or pension. Lastly, it can be used to pay for long-term care costs. Several modern policies even have benefits for long-term care.
College Planning – purchasing a policy and utilizing the cash value to cover tuition costs. You’ll need a long lead-time and/or a high rate of return in order to accumulate enough cash that will have the ability to pay tuition. If you go this route, the cash value won’t go into the EFC (Expected Family Contribution) for consideration if your student applies for Financial Aid, so you might receive additional help from student loans and/or grants. The downside is that growth could take a lot longer than a 529 portfolio would. Make sure to meet with your financial advisor to ensure you implement the right strategy customized for your personal situation.
Tax Diversification – Taxes will need to keep rising in order for underfunded federal obligations like SS, Medicare, Medicaid, government & military pensions to pay out & continue to be provided for future generations. For life insurance policies that have cash value, the cash value will grow tax-deferred within the contract, & beneficiaries will receive their disbursements federal income tax-free. Under IRS Code 1053, older contracts with cash value that are not ideally performing in the market may be eligible for exchange into a newer tax-free policy.
Business Needs – Ensure the continuity of your business by utilizing buy-sell agreements and life insurance policies. Whether you have two or several partners, you want to ensure that your business is passed to those with a vested interest in it.
Estate Planning – We all have an estate, and it’s critical that one stays on top of potential increases in estate taxes, which will be a large part of the national conversation in the next 18-24 months. Wealthy folks may not need life insurance for income replacement, however they might want to transfer their wealth to their loved ones in the most tax efficient way possible. Life insurance can help you transfer large amounts of wealth for pennies on the dollar. Other possible strategies include utilizing an irrevocable life insurance trust to mitigate estate taxes. It is critical that all explore options to utilize life insurance as part of a comprehensive financial & estate plan that will ensure you meet your goals. Make an appointment with your financial planner & insurance agent today.
For all of your Life insurance questions, call or contact me at cory@bigcory.com. (707) 419-5787 or you can fill out the contact form on bigcory.com
