Life insurance is marketed for providing income for loved ones once you are gone, but did you know about these 5 unique uses for life insurance?
1. Start saving for the future
Life insurance policies allow you to start saving for the future. If you purchase a life insurance policy for your child or grandchild, you can give them a headstart for savings while also giving them protection. This feature is only available in permanent or whole life insurance policies, so expect to have the policy for years to come.
2. Build wealth
Index Universal Life (IUL) insurance policies can not only be used as a way to protect you for the future but can also help you build wealth. With these kinds of life insurance policies, there are 3 key features:
- Term life insurance policy: Your monthly premiums will go toward maintaining a term life insurance policy which will provide the death benefit to your beneficiary.
- Cash value: Over time, this insurance policy will grow with cash value. A portion of the premium is set aside toward this cash reserve which is available to be used as an extra income source or loan.
- Investment: Annually, you will receive interest on your cash value based on the performance of an index such as the S&P 500.
How does it work?
It can be complicated to understand these types of life insurance policies because they are considered permanent life insurance. Unlike a term policy that expires over a period of time, you must own a permanent life insurance policy for your entire life, so it is important to consider the benefits before purchasing.
3. Take out a loan on a purchase
Another benefit of life insurance is that it can be used as a loan to yourself. This feature is only available on permanent or whole life insurance policies with cash value, but it can be a great way to use the cash you have accumulated for a purchase or financial emergency.
How does it work?
You can take out a loan from your life insurance policy easily, at a low-interest rate, and with no taxable income by the IRS. Once you take out the loan, you will be charged a low-interest rate, but it is not required to pay monthly payments to pay it back. If you have not paid it back by the time you die, then the amount of interest and loan will be subtracted from your death benefit.
4. Pay off outstanding debts
When figuring out how much death benefit you should have, it is important to add up all of your debt to make sure it will be paid off. The last thing you want is for your loved ones to have to worry about how they will pay any debt if you are underinsured and do not have enough money to cover these expenses.
5. Can’t think of a beneficiary? Name a charity instead.
Don’t let not having a beneficiary prevent you from enrolling in life insurance. If you do not have a beneficiary to provide for, consider naming your favorite charity instead. Leaving your death benefit to a charity allows you to continue to help a good cause you believe in.
Life insurance can be used in a variety of ways and can help you get the most out of the money you spend each month on monthly premiums. Contact a broker today to learn how to make life insurance work for you.