Too many people think of life insurance as just something you get for peace of mind. After all, it is typically billed as a safety net of sorts to help your family and loved ones should something unexpected happen to you. But life insurance actually can provide so much more and be a valuable part of any sound financial strategy.
Life insurance as protection
Yes, life insurance is essential to ensure that your family is financially stable in the event of your death. This is especially important if their livelihood relies on your income. Not only can it assist with things like your mortgage or the college plans of your children, but it also aids your family in simply maintaining their current standard of living. Finally it can help offset any final expenses that will stem from your death and burial.
Life insurance as cash
What many people may not realize, however, is that some types of life insurance offer a feature known as cash value. Typically this is found with whole life, universal life and variable universal life insurance policies. As time passes, your policy can accumulate a cash value that you can then use for big expenses, such as a down payment on a home or covering college tuition. This is cash that you can use as you see fit, while you are still alive.
Life insurance as tax benefit
There are actually two ways that a life insurance can provide a tax benefit to you or your family. First, most death benefits are not taxed upon payout to your family members. Potentially the insurance funds could be used to offset any estate taxes that your family would have to pay.
Second, certain types of life insurance—again, whole life, universal life or variable universal life—allow you to amass a tax-deferred cash value. As mentioned earlier, this is money you can access for any reason as a tax-free source of extra money. The downside of this is you are reducing a potential death benefit payment to your family should something happen to you.
Life insurance can be affordable
Finally, many people don’t consider life insurance because they automatically think it won’t be affordable. There are many possibilities available, with as many price points. Discuss your options with a qualified financial planner to see what works best for your family and your finances.