Uses of Life Insurance
Traditionally, life insurance has been viewed as a way to cover burial costs and to replace the loss of income that would occur in the event of your death. However, there are many additional ways that life insurance can serve as a valuable investment and risk management tool.
There's no doubt you can use the death benefit of life insurance to protect your loved ones against financial hardships such as loss of your income, and funeral expenses.
However, if you do your homework, you may be surprised at the variety of life insurance plans that exist, their creative uses as an investment vehicle, because they build cash value and count as a financial asset while you’re alive, and how they can benefit you and your family when you pass away and while you are still alive.
Why You May Need Life Insurance
Below are a few of the many uses of life insurance:
If the policyholder is the primary wage earner for the household, it may be difficult for those left behind to pay the mortgage, utilities, car loans, food and any other expenses. Life insurance can provide for their dependents in the event of their death.
Life insurance can make sure your family is not burdened with the debt left behind by the policyholder and can be used to pay off debts like mortgage, student loans, or credit cards debt, thereby easing the financial hardship associated with the death.
Paying for funeral and burial expenses can be a very expensive burden. Life insurance ensures that these costs are covered, easing the financial burden on the family during a difficult time.
Life insurance can provide the funds to cover estate or inheritance taxes, preventing the need to sell off assets or properties.
Life insurance can secure funds for the education of the policyholder's children if they were to pass away.
In the case of a business owner's death, life insurance can help in various ways, such as funding a buy-sell agreement or providing liquidity.
Some types of life insurance, like the permanent life insurance policies, build cash value over time that can be borrowed tax-free, serving as a form of retirement income.
Some life insurance policies offer riders for long-term care expenses, covering costs like in-home care or a nursing home.
A policyholder can donate a substantial gift to charity by naming a charity as the beneficiary and then turning the policy into a sizable charitable gift upon their death.
Life insurance can efficiently pass wealth to the next generation, often providing a tax-advantaged inheritance.
Beyond wealth, life insurance can help an individual leave a legacy, like an endowed scholarship at the alma mater.
When the bread winner dies, it could be very difficult to maintain the family’s same standard of living without their income. With Life insurance the policyholder will have peace of mind knowing that their loved ones will be financially taken care of.
If a majority of the estate is tied up in a family business or property for example, life insurance can provide a way to equalize an estate among multiple heirs who are not involved in the business or property.
A Life insurance policy can sometimes be used as a collateral for a loan providing the policyholder additional financial flexibility. You may borrow from your policy, using the cash value in your life insurance as collateral. Unlike loans from financial institutions, the loan is not dependent on credit checks or other restrictions.
Some people get life insurance to cover specific future expenses, like a child's wedding or to pay off the mortgage, car loans, and credit card debts, leaving other remaining assets intact for their family.
