We all know life insurance can help provide financial security for your beneficiaries when you pass on, but death benefits are not the only thing these policies can provide. A properly designed life insurance policy can complement funding your own needs or reaching your savings goals as well. It’s important to determine not only how much life insurance you need and which policy is right for you, but also how it can be used. In many cases, it can be part of a financial plan. Here are some features that might be worth considering.
If You Outlive Your Term
You may feel hesitant to buy life insurance because if you outlive your policy, you think you will have wasted money paying premiums. There is an option for you that will allow you to get back the money you paid into the policy if you never use it. Return of premium life insurance policies will pay you the equivalent of the premiums paid, without interest, if you survive the policy term. Terms are usually up to 30 years. ROP life insurance tends to cost quite a bit more than traditional policies so it’s not necessarily the right choice if your budget is tight, but the return payment is not taxed. This can be a good option if you are young, healthy and will feel cheated paying for traditional life insurance only to live past the end of the policy and receive nothing.
If You Want to Invest
There are several permanent policies that have underlying investment vehicles to help you build cash over time. You fund the policy for a certain number of years and the growth in cash value will eventually cancel out your need to pay additional premiums. When you reach retirement or your child is approaching college tuition payments, you can borrow from your life insurance tax-free. Your money is guaranteed to grow every year and the loans do not ever need to be repaid. However, the rate of growth is not always as high as other investment options.
If You Want to Build Wealth
Single-premium life insurance can help you create and transfer wealth. This can be a way to pass on an immediate death benefit to your beneficiary, helpful for paying taxes on other inheritances. Life insurance can protect your assets, but can also be surrendered at any time for its cash value.
Your life insurance policy can be as simple or complicated and as selfless or self-serving as you want or need it to be. Do not think of life insurance as only an opportunity to allocate your death benefits, but consider how policies can help your overall financial plan.
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