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.