July 26, 2012 by girlsgonewealthy
I know, it’s morbid and no one likes thinking about death—but the preconceived notion that life insurance is only for death benefits isn’t the whole truth. Life insurance can be used in a number of different ways that will ensure you always have a safety net.
First, it’s important to understand that the primary focus of a life insurance policy is that it instantly creates an estate to solve concerns about money and expenses upon your death for your family and/or your beneficiaries.
Besides the death factor though, there are also ‘Living Benefits’ associated with life insurance policies. These benefits can be valuable financial resources during your lifetime. When looking at life insurance options, you may want to purchase one that is a Permanent life insurance policy because these policies accumulate a cash value over their lifespan due to the premiums paid into it. They may have slightly higher premiums than term life insurance, but its because they have greater advantages- see below.
The cash value of your permanent life insurance policy can be used as a Living Benefit in the following ways:
Withdrawals are available in some policies and allow you to get cash out of your policy- just like you would from a savings account.
Dividends are payments made by the insurance company to participating policyholders. Any dividend payments are based on the investments the insurance company makes with the money it receives in premiums. If an insurance company has fewer people that die than expected that year (I know- it’s weird to make money off people NOT dying), lower operational costs than predicted, or earned a larger percentage on their investments than forecasted, this money goes back to you in the form of dividends.
If you are looking for extra income when you retire, you can use your life insurance policy to supplement your retirement income. These works especially well if you have multiple life insurance policies. You can convert a policy and turn it into monthly retirement income payments.
Loans (this is the best advantage) can be taken out on the cash value of certain policies. You are able to borrow money directly from the insurance company. No other collateral is necessary (ie you don’t have to have a house or a car to take a loan out on). A Policy Loan requires no credit check and is completely confidential. No cosigner is needed, and you may choose a loan repayment schedule that benefits you. The policy’s cash value can also be used as collateral if you are borrowing from other lending institutions. (It is important to note that any unpaid Policy Loans are deducted from the death benefit of the policy should the insured die. That unpaid loan amount would decrease the amount the beneficiary would receive.)
Why wouldn’t you have life insurance? Right now there is little advantage to your money sitting in a savings account… why not put your money in an asset that allows you to access your money if you need to, borrow against it, take money out of it and might even give you dividends! And the worst/best case scenario- you never need the money you put in and you have an asset your family will thank you for if anything terrible were to happen (only long happy, healthy lives for all our readers though…)