When most people think about life insurance, what usually comes to mind is settling final expenses and providing financial support for your loved ones. That is what life insurance is commonly used for, but there are other benefits of life insurance other than for protection at death:
- Estate Planning. If you have a large estate and want to ensure that estate is ‘intact’ and your beneficiaries don’t have to liquidate part to pay estate taxes to the IRS, life insurance can be used to pay estate taxes. Using life insurance for this purpose involves working with your attorney and tax professional to determine if this is an appropriate use of life insurance for your personal situation.
- Business Succession Planning. If you are a business owner and plan to pass on the business to a family member or other key employees, life insurance can be used for the ‘purchase’ of that business by the intended new owners. This type of use of life insurance involves a tax professional (done through IRS code implications) and an attorney to help with making sure the outcome is a benefit to all parties involved and is done correctly. It also involves this succession being a part of the business owner’s retirement plan.
- College Funding. If you’re a parent or grandparent, life insurance can be used as part or all of education funding for the insured (child) without tax consequences (assuming interest applied to cash value). If you would like to consider this use of life insurance for your child or grandchild, contact me to discuss this in detail. If the child doesn’t use it for education funding, you have given them the gift of life insurance for themselves or their beneficiaries. Check with the carrier to determine requirements on turning the life insurance policy over to the child when they’ve reached adulthood as you’re unable to own it when they’ve become an adult.
- Retirement Funding. If you own whole life insurance, you can borrow against the policy’s cash value (without tax consequences) to supplement your retirement. As long as you don’t use all of the cash value or surrender the policy, you will still have some remaining death benefit. Talk to your insurance professional to understand the details of using life insurance for retirement funding and how it may or may not be an option for you given your situation.
There are many other instances that the cash value in a life insurance policy can be used for. If you have questions about life insurance and how you can use it for any of the above situations or for other financial obligations, feel free to contact me.