By Mike Brooks with the Care Assistance Center, LLC
Life Insurance is a pillar of personal finance, one that is deserving of consideration in every household. Yet, despite its universal applicability it remains a complex and often overlooked part of a family’s well-being.
There are two types of life insurance: permanent and term. For the purpose of this article we are not diving into the pros and cons of either, but focusing on the benefits these plans can offer when you need it most… and I’m talking about while you’re still living.
Part 1: Living Benefits
Life insurance — with the appropriate riders — offers the ability to accelerate death benefits to an insured based on a qualifying medical condition. In plain English, the insurance company will pay you before you die.
Companies offering living benefits will trigger an insurance payment due to a heart attack, stroke, cancer, serious medical disease, major injury, and even long term care. With more than 60% of bankruptcies attributed to medical expenses, does saving your life need to cost you your life savings?
Example: John and Amber are both in their 50s and working hard toward their retirement. When they first got married both took out permanent life insurance for $250,000. John suffered a massive heart attack one summer and was not able to return to work for several months. Amber took time off from her job to take care of John and help him recover. The critical provisions of their life insurance policy allowed John to accelerate a portion of the $250,000 to see them through this crisis without having to destroy their nest egg.
Part 2: Retirement Income
Life insurance has a unique ability to provide income to supplement retirement, if planned for properly at the time of purchase. Permanent insurance often grows cash value, tax deferred, during the life of the policy. These funds can be withdrawn for spending, used to pay premiums, or transferred into new policies as needs change.
Tax-free loans against your policy can be used to supplement income before and during retirement without affecting tax brackets. Policies can be designed for rapid growth rather than large death benefits, keeping the cost of the insurance to a minimum.
Other specific insurance provisions can provide a cash benefit later in life when the need for insurance may be reduced or when the policy expires — preventing the use-it-or-lose-it scenario – and getting a lump sum of cash!
Example: John and Amber, now in their 60s, have finally decided to retire. Their permanent life insurance has grown significant cash value while they were younger and both would like to utilize these funds for retirement. Rather than withdrawing money from the account and paying taxes on the interest, John and Amber schedule a yearly loan against the policy — tax free. Every year John and Amber receive the same tax-free loan and use it to supplement their retirement. When they pass away the loans will be paid back to the policy from the death benefit and the remaining amount will be left for their heirs.
If you are interested in learning more about life insurance as part of retirement income, please contact The Care Assistance Center, LLC for more information. We have kind and helpful staff here to help: (919) 518-8237.