Unlocking Dreams Through Life Insurance Financing Today
Life insurance is often thought of as a tool for protecting loved ones after a policyholder's passing. However, this versatile financial product can be used effectively while the policyholder is still alive.
A recent study from Prudential Financial revealed that many Americans are unfamiliar with this aspect of life insurance. It can be an essential part of your financial strategy, supporting goals such as retirement and wealth passing.
There are two main types of life insurance: term and permanent. Term life insurance offers coverage for a set number of years and is generally more affordable. It does not accumulate cash value, but many term policies include features such as accelerated death benefits, which allow policyholders to access a portion of the death benefit if they are diagnosed with a serious illness.
On the other hand, permanent life insurance policies provide coverage for the policyholder's entire life, as long as premiums are paid, and build cash value over time. The cash value in permanent life insurance grows on a tax-deferred basis, and in many cases, withdrawals of premiums can be accessed tax-free.
Cash-value accumulation in permanent policies such as variable universal life insurance can be borrowed against or withdrawn, functioning like a low-interest loan. This feature can provide financial support while the policyholder is still living.
Living benefits are features built into certain life insurance policies that allow policyholders to access funds or policy value while they're still alive. These benefits can be used to cover living costs, pay off existing loans or mortgage financing, or reinforce retirement plans. Life insurance can even be used to fund a child's education or start a new business.
When considering a life insurance policy, it's essential to have a clear understanding of your financial goals. The clearer your objectives, the easier it is to choose the right policy. Ask a financial adviser about the cash value mechanics and timing, its impact on the death benefit, and how the policy integrates with your broader financial strategy.
Add-on benefits, or riders, allow customization of coverage to fit the policyholder's lifestyle, providing flexibility during illness or hardship. Ask about riders, such as those for chronic or terminal illnesses, long-term care, and other customizations.
Understand the costs associated with accessing the cash value, early withdrawals, and administrative charges. The most common applications of lifelong benefits from life insurance include securing financial protection for family members in case of the insured person's death, covering living costs, paying off existing loans or mortgage financing, avoiding liquidity issues in a business, and ensuring financial stability for dependents, especially families with children, to cover income loss and additional burdens such as childcare.
A financial adviser can serve as a guide and educator, helping to demystify life insurance complexities and inform decisions. Consider seeking advice from financial professionals to better understand your life insurance policy. Evaluate the flexibility of the policy over time, ensuring options for adjusting premiums, accessing funds, or adding coverage as needed.
Life insurance is not just about protecting your family after you are gone, but also about using it effectively while you are still alive. With proper planning, it can be used to pass assets on efficiently from one generation to another, helping reduce tax burdens for beneficiaries. Remember, this article presents the views of a contributing adviser, not the Kiplinger editorial staff.
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