Preparing for your future can often feel like an intimidating or daunting task, especially since we cannot predict the success or challenges we will be facing years down the road. As responsible adults, we want to ensure that we are setting ourselves and our families up for a secure, prosperous, and fulfilling future. By preparing earlier, it’s more probable that we will make better judgment calls and informed decisions to support our future—rather than acting on impulse or waiting until our options are limited.
One way a majority of people like to prepare for their future in terms of finances is by setting up a life insurance policy to protect themselves and their loved ones. In doing so, they are eliminating any unexpected financial burden placed on their family during a difficult time. Due to the complexities of individual or family circumstances, there are a variety of insurance policies available to choose from with varying benefits based on individual needs. Depending on your current policy or the one you are considering, it’s helpful to understand the benefits that come along with your policy and the ways in which they can help you.
1. An Additional Income Source
It’s likely that over the course of your life you’ve experienced having to allocate money towards very large expenses including, education, illness, vacations, or a mortgage. In the case of supplementing your life insurance, you may want to or need to use the benefits to accumulate a cash value that can be used as an extra income source during your years of retirement.
Unfortunately, many people struggle to manage their finances, leaving them in a troubling place during retirement. You might not even realize how quickly you will go through money during retirement and having this supplemental income can lessen your worry about money. Also, it can’t hurt to read up on a few ways that you can avoid outliving your retirement savings. Having this background will help you plan and manage your finances to support your lifestyle throughout retirement.
Pros: You’re able to access money that is yours and use it in the present time for
things you need or want.
Cons: If you decide to take this money out earlier than your plan allows, the money can be taxed as your income would be.
2. Provide Money to Loved Ones
You’ve spent your life working hard and saving money in constant preparation for the next phase of your journey. Hopefully, you’ve also given yourself time to enjoy the fruits of your own labor and used some of this hard-earned money to achieve your goals and dreams. Upon the later years of your life, you might also be interested in helping out your loved ones when you’re no longer there to support them.
A term policy can provide your family with your death benefit which will help cover initial costs of lasting debt, a mortgage, child care, or funeral expenses. Alternatively, a permanent policy might offer longer-lasting financial benefits for your loved ones. You can review policy options with a life insurance professional to see what benefits will best meet the needs of your family and ensure they are protected when you’re no longer there to support them.
Pros: Providing your family with financial support will be one less thing they need to worry about during a hard time.
Cons: Life Insurance might not automatically cover grievance services unless you set up this service with your particular plan or agent.
3. Pay Less in Taxes
If you’re looking to save on taxes, life insurance also offers this benefit. For both term and permanent insurance, there are policies available that will not tax your dependents once they receive your death benefit. Also, you could be eligible to take out tax-free loans using your cash benefit during your lifetime and looking to put your money to good use.
Pros: Maintain peace of mind knowing you have coverage and this can be used as a secondary savings account
Cons: You will be paying money out of pocket immediately for the life insurance plan
4. Financial Backing If You Get Sick
In this day and age, people are living longer and benefiting from medical and technological advances and treatment methods. Although this is great news, it can put further stress on your wallet and savings if you’re trying to make a designated amount of money last for a longer period of time. If you happen to get sick or are diagnosed with a chronic illness during retirement, trying to afford medical payments can feel stressful. This is one more way that your life insurance policy can be put to use. In this case, an accelerated death benefit would allow for an early payout.
Pros: You have the money to support yourself without having to rely on your loved ones to help pay for medical expenses.
Cons: Pre-existing conditions could raise the cost of your policy, meaning you’ll have higher premiums and be paying out more.
5. Protection for Your Business
If you own or co-own a business, there is a lot to consider—from the safety and financial security of your employees—to all other business partnerships and endeavors. You will want to ensure your bases are covered and your employees and family members are protected. Life insurance can help transfer business ownership should a key business partner or employee pass away, without impacting the state of the business or its member’s security or paycheck.
Pros: Your upper management and employees can keep their jobs as a business will continue. Also, you can control how your business will be passed on.
Cons: You cannot control the entire future of your business once it’s passed on and there will invariably be changes with new ownership.
6. To Leave a Legacy
Should you be so lucky to not need to tap into your life insurance benefits due to chronic illness, paying off debt, or other outstanding circumstances, you can use this to leave a sum of money for designated family members or loved ones. Your policy benefits can also help them pay for any taxes on your estate, while also minimizing the overall tax impact on your money or belongings left to them.
Pros: Allow your money and assets to help your family feel the lasting impact of your life and relationship with them.
Cons: This might not cover all costs and should be included as part of your overall financial plan
For many of us, the concept of life insurance feels abstract and therefore not something we need to worry much about until the future—yet we don’t realize its impact until we need it. If you’re looking to leave a legacy, pass down your most important assets, and provide your loved ones or business with a secure financial future, it’s important to take the time to determine the best life insurance policy for you.