Life Insurance Benefits for the Living

For many individuals, life insurance is an extremely uncomfortable subject.  It conjures up images of their own mortality and the reality that someday we will all pass away.  In the past, life insurance was only considered useful for paying final expenses and leaving funds for survivors. However, as time progressed, life insurance has developed far beyond providing death benefits

Today life insurance can be used by the living for many different purposes. So, let’s take a quick look at how life insurance can be used for the living.

• Education Funding- If you have a permanent policy such as Whole Life or Universal, the cash value could be very helpful with paying for college. The policy owner may take out tax-free loans from the policy’s cash value to pay for tuition and/or expenses. This strategy could lessen the need for the student to take a loan or supplement any withdrawals from a college savings account. Furthermore, a student may qualify for a greater financial aid amount because current FAFSA guidelines don’t count your life insurance policy’s cash value as an asset.

• Retirement Savings and Building Wealth- Whole Life Insurance and Universal Life Insurance could be of great value due to the buildup of cash value inside the policy. Roth or Traditional IRAs have contribution limits and in some case income restrictions for contributing to these accounts. A life insurance policy may allow you to save more with no limitations on eligibility based on income. Cash Value policies have a history of paying higher interest rates than savings accounts and money markets. Furthermore, the life insurance cash value is free from stock market volatility.

• Retirement Income Supplement- This is another area where the cash value inside whole life insurance and universal life insurance is a great resource. The policyholder may take out tax-free loans from policy’s cash value to supplement retirement income. In addition. Whole Life Insurance can potentially pay dividends to policy owners. These dividends are considered the return of premium and are tax-exempt. Using Life Insurance cash value to supplement your income can be very useful for individuals in high-income tax brackets by helping limit the required distributions from a Traditional IRA or 401(k).

• Living Benefits for Critical, Chronic, or Terminal Illness- Depending on the issuing insurance company, many Whole Life, Universal Life, and Term Life Policies carry some or all of these features. This feature allows the policy owner to access the policy’s death benefit or a portion of it to pay for medical treatments, hospice, and other related expenses associated with one of these illnesses. Keep in mind, these payments are subject to guidelines by the issuing company. Accessing this benefit can preserve a family’s finances from the high cost of medical care so they will not have to dip into their savings or other assets.

Life Insurance has many present days uses in addition to its original purpose. If you don’t have life insurance, perhaps these living benefits will help you consider getting it. If you currently have a policy, now would be a good time to have it reviewed. A financial advisor and/or a life insurance agent can work with you to structure a policy or use your current policy to meet your financial goals. Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor. He is an Investment Advisor, Life Insurance Agent and does Financial Planning. Securities provided by Trade PMR, Member FINRA, SIPC. If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com. Disclosures:

1. Distributions, for any purpose, are not taxed under the current law provided the policy avoids Modified Endowment Contract (MEC) status and remains in force. If tax-free loans are taken and the policy lapses, a taxable event may occur. Loans and withdrawals from life insurance policies classified as modified endowment contracts may be subject to tax at the time the loan or withdrawal is taken and, if taken prior to age 59½, a 10% federal tax penalty may apply.
2. Withdrawals and loans reduce the death benefit and cash surrender value. Withdrawals from 529 plans are tax-free if used for qualifying education expenses. 
3. Benefits are subject to the claims-paying ability of the issuing life insurance company.  You should consult a tax professional before taking any distributions.

Scholarships and Grants

It is hard to believe that the new school year is almost upon us.  Very soon students will be returning to classes, meeting new teachers, making new friends, and settling into the routine of the semester.  In addition, many high school seniors will be turning their attention to the next step of their academic career - applying to college and finding a way to pay for it.  When it comes to funding a college education, most students will require some type of financial aid with the most preferred being scholarships and grants.  Scholarships and grants are the most sought-after types of financial aid. However, many students (and their parents) don’t realize they are different.  So, let’s take a quick look at these financial aid vehicles.

Scholarships are awarded to students based on merit. Individual recipients receive scholarships based on their achievements in the classroom, sports, or some other type of activity.  The source of most scholarships is College Departments, Alumni, Businesses, Community Organizations, Religious Organizations, Philanthropists and the Military (ROTC).  Grants are “needs” based.  This means grants are awarded based on the student’s or his/her family’s financial situation.  The sources for grants vary.  While many colleges offer some type of grants, most grants come from the federal and state government.  The most well known federal grant is the Pell Grant; also many states offer grants for in-state students. 

If a student wishes a scholarship or grant, it is important to start the application process early in his/her senior year of high school.  The procedure is fairly simple. First, it is required that a student complete the FAFSA (Free Application for Federal Student Aid).  This can be done online at https://fafsa.ed.gov/.  Next, find out what financial aid forms your college requires. Finally, research and apply for outside scholarships.  In addition, it is recommended that a student and his/her parents talk with the high school guidance or college placement counselor. It is also encouraged that a student and his/her parents schedule a personal appointment with the college financial aid office.  If you are a prospective college athlete, it is very important to register with the NCAA Eligibility Center (formerly the NCAA Clearinghouse) and to meet with your high school athletic director and coach to discuss the recruiting process.

Once a scholarship or grant is awarded, this does not mean that the student is “free and clear” for the rest of his/her college career.  Scholarships and grants have certain requirements for the student to satisfy to keep the award in force. This means a recipient must maintain a specified minimum GPA, course load, and full-time admittance status.  Some scholarships or grants also have a work requirement associated with them that must be met.  In the case of a scholarship athlete (or student-athlete in general), certain minimum NCAA eligibility requirements must be met along with the practice, training, and game commitments.  If an individual accepts an ROTC Scholarship from one of the branches of the armed forces, the student will have drill and Summer Camp commitments.  Upon graduation, Military Service as an officer will be required. 

Given the increasing cost of college tuition plus mounting student loan debt, scholarships and grants are an excellent source of financial aid.  Just remember, these two awards are different and there are obligations that go with them.  Your guidance counselor and the internet are excellent sources of information to help to locate the right scholarship and/or grant to help finance a college education.  Have a Great School and Successful Year!!! 

Matt Dressel is the Owner of the Independent Financial Solutions Group, a Registered Investment Advisor.  He is an Investment Advisor, Life Insurance Agent and does Financial Planning.  If you have any questions about this article, he can be reached at 252-515-0242 or matthewdressel.ifsg@gmail.com.