How You Can Leverage Life Insurance to Secure Your Financial Future

Death is inevitable, yet no one can correctly predict when they will die. Hence why having a life insurance policy should be an essential part of your long-term financial planning. Life insurance was designed to pay a lump sum to specified beneficiaries when the policyholder passes on. The money helps them to cushion the financial difficulty that may arise from losing a provider.

However, Life Insurance policies have evolved beyond that. Today life insurance products are designed to provide financial security during your lifetime and a payout for your dependents when you die.

Below are some ways you can leverage life insurance to secure your financial future.

 

Retirement Planning

As stated by James J. Meehan of 1847 Financial, “A Life insurance policy needs to be the foundation of a solid retirement plan if your family is mostly depending upon your retirement income.” Having life insurance coverage in retirement will give you peace of mind, protect your income and give you tax-free cash flow.

Life insurance bought for retirement purposes comes in two phases:

The accumulation phase is when the policyholder pays a premium on the policy. A part of these payments is invested in annuities so that the investment can grow.

When the policyholder starts getting returns from the investment to meet their financial needs in retirement, the annuity phase starts getting returns from the investment.

 

Business Purpose 

A life insurance policy can be tailored to ensure business continuity after the death of the owner. For instance, if you buy a policy that allows for cash value growth, the cash can be used if the business runs into financial difficulty.

Another way entrepreneurs can leverage life insurance is through the key person or key man life insurance policy designed to provide financial support for a business when the key man (usually the owner) passes on.

The policy allows for death benefit payout to the business, which can be used as running capital, settling business debts, and others.

 

Estate Planning

Estate planning is one way to protect and transfer wealth from one generation to another, and life insurance can be an integral part of your estate planning strategy. For instance, the average tax rate for assets is 18%, while the top rate for assets worth over $1 million is 40%. The irrevocable life insurance trust (ILIT), a special trust between the policyholder and the insurer, can help protect your assets from being subject to estate taxes.

 

The Best Life Insurance Policy to Ensure Financial Security

Both term and permanent life insurance policies can provide coverage in their way. They give you several options to choose from. So the product you buy should be based on your unique situation and goals.

 

Term Life Insurance

This type of life insurance only covers a specific period. It can be 5, 10, 20, 25, or more years. The primary purpose of term life insurance is to provide a death payout if the policyholder dies before the policy’s expiration. Term life insurance has two major products: (1) the level term, which offers a fixed death benefit, and (2) a decreasing term with a death benefit that drops gradually over the course of the policy.

 

Permanent Life Insurance

This life insurance policy offers coverage for the insured person throughout their lifetime. The policy doesn’t expire as long as you keep paying the premiums. It’s more flexible and can be tailored to meet the policyholders’ financial needs during their lifetime.

Permanent life insurance also has various life insurance products, including universal life, universal variable life, and indexed universal life. While similar, each product has its unique way of providing coverage.

With some products, the premium you pay is divided into two, with a part of it going to the death benefits and administrative charges. In contrast, the other part goes to a choice investment subaccount to potentially grow cash value. The cash value is the living benefit a policyholder can use while they are still alive.

 

How to Maximize a Life Insurance Policy

While all life insurance products have their benefits, your buying decision will determine whether you make the most out of it. You need to consider your personal/family immediate and long-term needs. Why do you need the coverage? Is it for immediate financial purposes or long-term coverage?

Consider speaking to a financial professional. They have the experience to assess your situation and direct you to the best life insurance product to buy. They can also direct you to the best insurance companies to get the best deal.

It’s also essential that you get quotes from multiple insurance firms and don’t evaluate them based on prices alone. Some policies may offer great prices but little value.