An all-encompassing financial strategy must include life insurance. In the case of your untimely passing, it protects your loved ones and makes sure they will be secure financially long after you are gone.
According to Forbes Advisor’s survey, the majority of American adults (at least 75%) hold some form of life insurance. The survey also reports that 44% of households would face significant financial struggles within six months if the primary breadwinner passed away, with 28% reaching that point within a mere month.
However, life insurance policies can offer more than just a death benefit. You can get extra monetary advantages from your life insurance coverage with careful thought and smart preparation.
In this article, we will explore diverse options to help you maximize the financial benefits of your life insurance policy.
Whole Life and Universal Life Policies
According to Marble, life insurance policies such as whole life and universal life offer a unique feature known as cash value accumulation. Your premium payments include a part that goes into a cash value account, which increases over time. You can use this monetary value at any point during your lifetime, giving you a useful asset that can be utilized in many ways.
Policy Loans
There are individuals who wonder, “Can I borrow from my life insurance policy in time of an emergency?” The answer is a resounding yes. It is, in fact, entirely possible to access funds from your life insurance policy to address urgent situations.
You have the choice of taking out a policy loan against the cash value of your insurance. This loan is backed by the cash value itself and usually carries lower interest rates when compared to traditional loans.
The funds you borrow can be utilized for various purposes, such as debt repayment, educational financing, or even starting a business. However, it is crucial to repay the loan to prevent any reduction in the death benefit provided by the policy.
Policy Surrender
You can surrender the policy and get your money back if you no longer require life insurance coverage or need access to a sizable sum of money. Alternatively, you can choose a partial surrender, which allows you to withdraw a portion of the cash value while keeping the policy in force.
Selling Your Life Insurance Policy
Life settlements provide another avenue to maximize the financial benefits of your life insurance policy, particularly if you no longer need the coverage or find yourself in a changed financial situation.
When you sell an insurance plan to another party for a one-time sum that is frequently greater than the cash surrender value, this is known as a life settlement. This option may be especially tempting to people who need money for long-term medical treatment or those who are having financial difficulties.
Accelerated Death Benefit
The accelerated death benefit riders on a life insurance policy are extras that let you receive an amount of the death benefit while you are still alive. If you have been told that you have a terminal disease, a serious sickness, or that you need long-term care, these riders are very important. By accessing the death benefit early, you can alleviate financial burdens associated with medical expenses, treatments, or caregiving costs.
Estate Planning Strategies
In order to safeguard and transfer money effectively, life insurance can be a key component of estate planning. Here are a few strategies to consider:
Irrevocable Life Insurance Trust (ILIT)
You can remove your life insurance policy from your taxable estate and possibly pay less estate tax by putting it in an ILIT. The trust becomes the policy owner, and the death benefit proceeds can be distributed according to your wishes while minimizing estate tax liability.
Forbes reports that the vast majority of Americans (over 99%) do not owe estate taxes upon the death of an individual. However, heirs of estates valued above $12.06 million are subject to a substantial 40% federal estate tax. In such cases, an ILIT can provide a helpful solution for covering these tax obligations.
Wealth Transfer
If you have substantial assets, you can use life insurance to equalize inheritances among your heirs. By designating a portion of your estate to fund life insurance policies, you can provide an equitable distribution of wealth, ensuring your loved ones receive their fair share.
Seek Professional Guidance
When it comes to maximizing the financial benefits of your life insurance policy, it’s crucial to approach the process with careful consideration and a thorough understanding of the available options. In order to navigate this complex landscape effectively, seeking the guidance of a financial advisor or insurance professional is highly recommended.
In an article published on Yahoo! Finance, it is emphasized that sharing your financial information with someone else can make you feel vulnerable. Therefore, it becomes all the more important to hire an advisor who is genuinely dedicated to your best interests. They will work diligently to analyze the available options, present you with clear explanations, and guide you toward the most advantageous path.
Key Takeaways
Life insurance policies offer a range of opportunities to maximize their financial benefits beyond the traditional death benefit. By understanding and exploring diverse options such as cash value accumulation, policy loans, policy surrender, life settlements, accelerated death benefits, and estate planning strategies, individuals can unlock additional value and flexibility.
However, it is important to approach these options with careful consideration and seek professional guidance to make informed decisions aligned with your specific financial goals and circumstances. By taking advantage of the various avenues available, you can optimize your life insurance policy to provide comprehensive financial protection and secure the well-being of your loved ones both in the present and in the future.
