Using Life Insurance To Meet Your Financial Goals

Life insurance can be a key part of a well-structured estate plan, an important business strategy, and a wealth-building tool. When was the last time you reviewed your life insurance coverage?

Life insurance is even more important in an uncertain economy.

According to a 2021 survey, 42% of American households would face financial hardship within 6 months if they lost one income, while a quarter would find it difficult to meet their expenses within one month.¹

People commonly overestimate the cost of life insurance and underestimate its value. Half the respondents in a recent survey estimated that life insurance would cost three times the actual cost.² It is easy to minimize our own risk of unexpected death, and underestimate the value of a death benefit for our survivors. ³

Life insurance protects your loved ones financially after you die.

The tax-free proceeds from a life insurance policy can help your loved ones adjust to life without your income. The funds are quickly available to help them meet funeral and other final expenses, which can run into thousands of dollars.

A bereaved spouse or partner may face a sudden drop in their standard of living, or an ongoing lack of funding for basic needs. Women in particular are likely to see a significant drop in their income when their spouse dies.⁴

Life insurance can be a crucial support for a widowed parent. It could provide the means to fund your child’s education or allow your family to stay in their home after you die, ensuring that your child can thrive if you are not there to provide for them.

Life insurance can benefit your business.

A life insurance policy can be useful for business continuation and employee benefits. A buy-sell agreement funded with life insurance will allow the surviving business owners to buy out the interest of a deceased owner at a previously determined share value. Key-person insurance can also aid a business if a core employee passes away. These strategies can be funded with pre-tax dollars.

Which policy is right for you?

The differences between whole life, term, and variable policy types can be significant. When you are selecting a policy, consider whether any of these life situations apply to you:

• • You are married and your spouse depends on your income.
• • You have children.
• • You have an aging parent or disabled relative who depends on you for support.
• • Your retirement savings and pension will not provide enough income for your spouse to be financially stable.
• • You have a large estate and expect your heirs will owe estate taxes.

Life insurance can be part of your plan to build wealth.

Think of life insurance as a multi-purpose tool in your toolbox for retirement and estate planning.

A life insurance policy can be a vital financial strategy for empty-nesters who want a comfortable retirement lifestyle. The cash value of a permanent life insurance policy can grow tax-deferred during your lifetime. Furthermore, you may be able to take out a tax-free loan against the policy’s cash value as long as you meet certain requirements.⁵

If you are not yet able to afford permanent life insurance, a term life policy can be much less expensive. Some term life policies will allow you to convert them to permanent policies later, without re-qualifying.

A permanent policy that has served its purpose of providing protection during an earlier stage of life can be converted to retirement income or cashed out for an emergency or opportunity later in life.

Life insurance is the Swiss Army knife of retirement and estate planning: it can be used in multiple ways to meet a variety of financial goals.

Citations.

1 - "Top Misconceptions about Life Insurance" at https://www.limra.com/siteassets/research/research-abstracts/2021/2021-insurance-barometer-study/2021_barometer-infographic.pdf

2 - https://www.iii.org/fact-statistic/facts-statistics-life-insurance#Life%20insurance%20ownership

3 - See a table of an American’s lifetime odds of dying from different causes at https://injuryfacts.nsc.org/all-injuries/preventable-death-overview/odds-of-dying/

4 - American widows see a 37% decline in household income when their spouse dies, while men see only a 22% drop. Often, the loss of a spouse sends women reeling toward a life of poverty. More than half (51%) of widowed women 65-and-older live on less than $22,000 a year.

5 - https://www.investopedia.com/ask/answers/111714/what-are-tax-implications-life-insurance-policy-loan.asp