What You Don’t Know About Life Insurance
Many of us are conditioned to believe that a family only needs to own life insurance on a primary breadwinner. This could explain why men tend to own more life insurance, on average, than women (although men and women both tend to be underinsured).1
The common perception is that life insurance is primarily needed to help protect young families in the event that a major wage earner dies before the children are grown. The reality is that far more people either need or could benefit from owning the appropriate life insurance policy. Here are some uses for life insurance that you may never have considered.
To help replace both the income and the nonfinancial resources provided by a household member other than the primary breadwinner. Many households overlook the need to protect against the loss of a family member whose primary contribution to the household may not necessarily be money but unpaid work that helps support the primary breadwinner’s ability to earn money. For example, consider a family in which one spouse works and the other spouse cares for small children and oversees other household responsibilities. If something were to happen to the stay-at-home spouse, the surviving earner might find it difficult to keep working and provide care for the children. The cost of child care or an in-home worker to help take care of the kids could be substantial, and if the surviving spouse is unable to meet them, he or she could be forced into working less, saving less for retirement and college, and/or adopting a lower standard of living.
To cover a mortgage, final expenses, taxes, and debts. People who have no dependents or a spouse often believe that they don’t need life insurance. But one of the primary reasons to own life insurance is to pay bills and other expenses that would otherwise be borne by someone else, such as parents, other family members, or any heirs. Life insurance can help pay debts, medical bills, funeral and burial expenses, and probate costs, as well as help increase the size of the decedent’s legacy.
To leave a legacy. A life insurance policy can help turn a modest financial gift into a large legacy. In some cases it may make more sense to use money that was earmarked for a charity, family member, or friend and instead use it to buy a life insurance policy with the charity or heir named as beneficiary. As long as the donor can keep the policy in force, the amount of the death benefit may be far greater than the cost of the premiums.
To help generate income. Policyholders may borrow against the accumulated cash value of a permanent life insurance policy for any number of uses, such as supplementing retirement income, paying off a mortgage, or sending family members to college. Access to cash value is through withdrawals or loans. Policy loans do not have to be repaid, but they reduce the cash value and death benefit by the amount of any outstanding loan balance plus interest. One additional benefit: withdrawals and loans are not subject to income taxes.
The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased. Before implementing a strategy involving life insurance, it would be prudent to make sure that you are insurable. As with most financial decisions, there are expenses associated with the purchase of life insurance. Policies commonly have mortality and expense charges. In addition, if a policy is surrendered prematurely, there may be surrender charges and income tax implications.
There are other ways that life insurance can help benefit you and your beneficiaries. We can help you evaluate the role that life insurance could play in your overall financial situation.
1) Employee Benefit News, September 23, 2009
The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2010 Emerald.
|Beacon Retirement Planning Group, financial planning, San Diego, Carlsbad, Southern California|
|6005 HIdden Valley Dr. Suite 220||•||Carlsbad, CA||•||92011|
|Phone: 866-800-7789||•||Fax: 760-692-0775|
Beacon Retirement Planning Group, Inc.
6005 Hidden Valley Rd. Suite 220
Carlsbad, Ca. 92011
Toll Free: 1-866-800-7789
Ca Ins. License # 0E89558