September is National Life Insurance Awareness Month, which makes it a good time to look at the different ways that life insurance can fit into your financial plan. The traditional thought on life insurance is that it pays your beneficiaries a lump sum when you die. But, there are some ways you can use your life insurance while you’re still alive to enhance your life and the lives of your loved ones. Here are five ideas for you to consider:
- Supplemental Retirement Income – Permanent life insurance policies that build cash value can in many cases provide you tax-free income in retirement. If structured properly, you may be able to withdraw your cost basis tax-free and then borrow against the growth, also tax-free.
- Collateral for a Loan – Just like banks and mortgage lenders use homes as collateral; lenders sometimes use cash value life insurance as a guarantee for a loan. But be careful. If you, the borrower are unable to pay, the bank can access the cash value in your policy to pay the loan.
- College Tuition – Perhaps you bought a permanent life insurance policy to make sure that if something happens to you, your kids will still get to go to college. But then a good thing happens, and you don’t die. If your policy has cash value, you may be able to access that money to help pay for college expenses. And, in many cases, the value of the policy is sheltered from the financial aid need analysis formula.
- Take Out a Loan – If there is sufficient cash value, you may be able to take out a loan against your life insurance policy. Life insurance companies frequently offer cash-value loans at interest rates that are lower than a traditional bank loan. Additionally, you are not required to pay back the loan since you’re essentially borrowing your own money. Keep in mind that any money you borrow, plus interest, will be deducted from the death benefit your loved ones will receive when you die.
- Stop Your Premiums – You may be able to convert your life insurance policy to a paid-up policy or use the cash value to exchange it for a paid-up policy to maintain your coverage without continuing to pay premiums. That puts more money in your pocket every month. The amount of cash value you have will determine whether the death benefit will remain the same, increase or decrease.
Whenever you borrow money from a life insurance policy, exchange your policy, take out a loan or use it as collateral, there can be tax and other financial implications. Be sure to speak with a licensed insurance professional before making any decisions about utilizing cash value strategies in your financial plan. You want to ensure you don’t adversely impact the protection you have for your loved ones.
Securities and advisory services offered through Infinity Financial Services. Member FINRA/SIPC
Infinity Financial, LGC Wealth Management, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax, legal or accounting advice. You should consult your tax, legal and accounting advisors before engaging in any transaction.