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Life insurance's primary purpose is to provide financial assistance to the insured's loved ones after they pass. The value can range from just enough to cover some of the final costs to an amount that can support the family throughout the grieving and adjustment process. While most people know that much about life insurance, there are other potential benefits. Below we'll look at how life insurance gives you financial independence while you're still alive.
Term and permanent are the highest levels of categorization for life insurance. Term life insurance only lasts for a set period of time, then the policy has to be renewed. Otherwise, it exists because it is simple and inexpensive.
Permanent life insurance is far more complex, but the core feature of all versions is that it will last indefinitely. Failing to make payments can cause a lapse in coverage, but the policy will otherwise accrue benefits in addition to the normal death benefit.
Many permanent life insurance policies put a portion of your payment into a fund referred to as an actual cash value. As the name suggests, you get to decide how that cash is used. While in the policy's actual cash value fund, the money does not count towards your income for taxes. Some policies will put your cash value into an investment fund, paying a dividend into the cash value so it increases over time. This value is also the major player in how life insurance can help you financially.
Unexpected bills can cause a rippling shockwave of financial problems that hamstring financial independence for years to come. Helping hands are rarely ready or able to help, and most financial institutions will not be willing to give a risky loan to someone in dire straits. If you have an existing permanent life insurance policy with an actual cash value, most companies will grant you a loan with favorable rates and flexible repayment options without running a credit check. Any remaining value on the loan will be taken out of the death benefits before payout.
If you don't think you will be able to pay the value back or don't want to worry about the payments, you can typically withdraw the cash value. Taxes will apply, and you'll set back your policy's value by that amount. Still, it can be a worthwhile option to keep in mind.
As long as you continue keeping a whole life insurance policy active and in good standing, your policy will continue to cost about the same. The exact amount of change will vary with the policy, but factors like your current health will normally not be reviewed. When you purchase a policy early on in your life, you can see a massive discount on your policy's rates.
The returns on the average whole life insurance plan's investment dividends are usually not going to surpass savvy investment, and directly increasing the cash value is not always an option. Still, looking for larger policies with better cash value increases can be financially useful for both lowering your current tax liability and increasing the power of your actual cash value if you want to make use of it later.
Some policies will pay benefits before death to cover costs like intensive care and assisted living. How much they will pay and what conditions qualify will vary between companies and policies, but all of them will reduce the final payout by the granted amount. If the beneficiary were responsible for those bills regardless, this feature can both alleviate the burden and improve the quality of your final moments with them.
Hopefully, this quick guide has informed you how life insurance gives you financial independence and benefits. Since every provider will have their own variations on these benefits, having a skilled insurance agent to navigate you through the intricacies will make it easier to actualize the financial value of a life insurance policy. Residents of Idaho Falls and the surrounding great state of Idaho can contact Alpine Castle Insurance by phone, website, or a visit to the office to find an agency ready and able to help.