One of the topics I talk with clients about is life insurance. There are many responses when I bring it up. What good is life insurance? Why do I need it? I have life insurance but do I have enough? And sometimes what is life insurance? These are all valid responses and what I try to do is look at each clients situation and figure out if they need it, if they need more, or what type they need. Every situation is different but what I hope is that the following list may give you some idea of what you can do with life insurance if you have it.
- Retirement Supplement
One of the most advantageous uses of a Whole Life insurance policy is the ability to access the cash value accumulation within the policy to supplement other retirement income sources. Being able to tap into the cash value to increase your retirement income or bridge the gap from other sources like IRA distributions, Social Security, etc may be key to a comfortable retirement. 1,2,3
- Fund a Buy/Sell Agreement
A Buy/Sell agreement is essentially the will of a business. Especially in a partnership it is important to know what would happen when one partner passes away and the other is left with the entire business to run. A term life or better yet a whole life policy will be able to fund the buyout of the business by one partner to insure the continuation of the business entity without causing undue stress for the surviving partner.
- Business Continuation Assurance
You have spent your life building up your business so that it is successful. In most cases you may have family and employees that depend on the business for their livelihood. A Life insurance policy can insure that the business can continue if you pass away. Giving the business assets to draw from to pay bills, hire additional help, etc can mean all the difference in keeping the doors open.
- Family Income
This is simple enough. In the event of your death your family will have an income tax free amount of money that they can use to help maintain their current lifestyle. Also you can use the benefit to help pay off debt, pay for college and/or make equitable distributions to beneficiaries.
Endowments can be funded by life insurance. Being able to leave a substantial amount of money to your favorite charity, organization, and the like to insure that they can continue and even grow can be a great idea for a life insurance policy.
- Cash Value Usage
A Whole Life Policy typically has a cash value that grows from paying premiums and the accumulation of non-guaranteed dividends. You can withdraw cash value up to the amount you have put in without it being taxable and/or borrow the earnings. This money can be used to help fund weddings, home purchases, education expenses, retirement, or loans for your business. Having this flexibility can make all the difference in how you look at your overall financial stability.
In a general sense Whole Life Insurance can be used as a very conservative asset that can complement a portfolio of high-grade bonds. The cash value that has already accumulated in the policy can never go down provided there are no loans or withdrawals. In addition the policy may be purchased from a highly rated mutual life insurance company whose first allegiance is to the policyholders and not the stockholders.
- Juvenile Policy
Juvenile Policies are a good way to create a forced savings plan for your children. It will lock in their insurability at an early age and also give you a source for funding education, weddings, etc. If you choose not to utilize the cash value then they will have a significant asset as they go through life.
- Emergency Funds
You should have at least 9 months of emergency funds available to supplement income should something happen that would cause your income to decrease or completely stop, should you have health problems or a job loss, or any other unforeseen events. The Cash Value in a Whole Life policy can be just the vehicle to have access to those funds.
- Income Replacement
The most important thing that a whole life policy can do is to replace your income upon death so that your family can continue their current lifestyle. This is especially so if the death is premature. The dividends in the policy grows not only the cash values in the policy but also the death benefit, which helps offset the effects of inflation.