The Advantages to Owning Life Insurance
The search for the right life insurance policy will typically fall short from your "Top Ten List" of favorite activities to pursue. After all, there's a lot of unconformable feelings involved during the whole process of a buying a life insurance policy. Granted, it’s not a picnic, but when given the opportunity to step back and really look at the advantages of owning life insurance, most people will agree that it ranks up there with their very best financial decision.
Anyone who owns a life insurance policy understands the reason why they bought it. For most people, it's a peace of mind that they have provided the financial security for their family in the event of dying prematurely. This is in fact one of the biggest advantages of a life insurance policy, as it provides safety and security in which no other financial vehicle or strategy can. However, as significant as that sounds, this financial freedom still may not be enough to convince some people of it's true value. Some people aren’t convinced until they see life insurance in action, such as when a friend or loved one dies and the survivor receives the death benefit proceeds. Fortunately, it doesn’t take the death of loved one, to truly understand the advantages of life insurance.
The Four Advantages of Owning Life Insurance
- It Creates an Instant Estate
We work a lifetime to accumulate the assets that will pay for all of our essential needs: a college education for our children, a comfortable home, a pleasurable lifestyle, a secure retirement. Sometimes that lifetime is cut short, but if a family is left behind, those essential needs don’t go away. When a primary breadwinner dies, there are typically additional financial needs that need to be met, such as final medical expenses, funeral costs, legal fees, and outstanding debts. Life insurance creates and instant estate at moment it is needed and it leaves a legacy of love, comfort and certainty.
- It has a Triple Tax Break
If you dislike taxes as much as most people, then you should love life insurance. No other financial instrument has the host of tax incentives that life insurance has and you don’t have to wait until after you die to benefit from them although that is when the biggest tax benefit is realized via a tax free death benefit. Additionally, cash value life insurance allows you to accumulate funds without being taxed currently on the earnings. This can be significant for cash value accounts that are left to accumulate for many years. The difference in earnings can amount to thousands of dollars due to tax savings. Finally, you can enjoy your cash value accumulation while you are living through tax-free withdrawals to the extent that you withdraw just your principal. Withdrawals from cash value life insurance consist of your principal first, and then your earnings which are taxed as ordinary income. Or, you can borrow from your cash value account, and because this would be considered a loan, it is not currently taxable. All tax issues regarding your life insurance policy should be discussed with a financial professional so you understand all of these implications.
- It’s a Capital Source
Life insurance can be a tremendous funding vehicle for many of your essential needs while you are alive. The ability to earn competitive rates of return without the encumbrance of taxes gives life insurance some unique advantages as an accumulation vehicle. Life insurance owners have used their cash value accounts to fund home purchases, college expense, and business start-ups. The cash value accumulation inside a life insurance policy can also be a significant source of supplemental retirement income.
- It’s Cost Effective
Life events can be very expensive, especially since many of them occur sometime in the future when the cost of money inevitably increases. The cost to settle a large estate can be significant and the cost for a business to buyout surviving family members can break the business. Life insurance is the only method for paying for these very expensive future events using discounted dollars. For, literally, cents on the dollar, a college education can be paid for, a home mortgage paid off, an entire estate passed to heirs, or a business interest acquired.
It’s easy to dismiss life insurance as just one more thing on a checklist of financial obligations. But, if you are going to take the time and trouble to put the vital piece of your financial puzzle in place, you may find it very worthwhile to take a moment and consider how the advantages of life insurance can work in your favor. Perhaps the greatest advantage of life insurance is the peace of mind that it provides while you enjoy all that life brings you. That’s hard to quantify in monetary terms, but, for most people it is priceless.