A permanent life insurance policy gives you plenty of benefits, including the ability to look after your loved ones when you pass yet act as a wealth builder when you’re still alive. But how can you use life insurance benefits to your advantage? We’ve got the lowdown in this guide with everything you need to know about life insurance benefits.
Create another source of income
Who doesn’t like more money? Especially when it’s a relatively safe bet and you don’t need to take any risks to get it. With a permanent life insurance policy, you can create a second source of income through its cash-value aspect.
It works with you paying into two pots in your policy: the death benefit and cash value. With the cash-value element, you build wealth over time and then access it later in life to use as extra retirement income, or for pretty much anything you want to spend it on.
One policy type is an index universal life (IUL), a policy which grows an impressive 6%-8% on average and lets you build up a nice little nest egg for your older years. The way it works is that your returns are based on an index, like the S&P 500, but with a cap and a floor, which means you make returns up to 12% (for example) and you will never lose any money if the market goes down. This product type is for the young investor who doesn’t want to suffer any market losses. The younger you start with permanent life insurance coverage, the more wealth you can build over time.
There’s also the option of variable universal life insurance (VUL), which is another form of permanent life insurance. It gives you more flexibility than a traditional perm policy, as you can access the funds at any time and not just in your later years.
VUL works in a similar way to a mutual fund, with exposure to specific market fluctuations able to generate high cash returns. However, unlike an IUL, which is a very fairly safe investment, VUL is more risky. While it can generate returns from market fluctuation; it could also lead to losses. This product type is for the aggressive investor who wants the highest returns in the market and is willing to account for market losses. As an investor, you can choose the funds you want to invest in and make changes throughout the policy’s lifetime without suffering any taxation or tax liabilities.
A VUL policy gives you increased flexibility over the cash value. And, when done right, it can boost your wealth while providing a death benefit to your loved ones when you’re no longer around.
Save tax-free
Taxes might be a fact of life, but they don’t need to be with permanent life coverage. It’s one thing being able to build wealth with your life insurance policy; it’s another when you can do it tax-free. And that’s exactly what you can do with a permanent life insurance policy.
Other than a tax-free death benefit for your loved ones, you can also grow your wealth without paying tax by accessing the cash value in the form of a 0% loan against yourself. Because you can’t pay yourself taxes, the money you withdraw is entirely tax-free.
Then, when you pass, the death benefit pays off the loan, with the rest of it going to your loved ones. Most savings accounts require you to pay tax on the wealth you’ve built, but there’s no need to worry about doing that with a perm policy.
Pay for your kid’s college
When you access your cash value, you can use it to do pretty much whatever you like. One option could be paying for your kid’s college. If you don’t have a 529 plan, a permanent life insurance policy may be ideal for covering the expensive costs associated with college.
You might think that the idea of using life insurance to cover the kid’s college fees is somewhat unconventional. But that just goes to show the flexibility of permanent coverage, as it can help you in many scenarios, such as giving your kids a helping hand in life.
Treat yourself to that convertible
Or, you know, you could just use the cash accumulation to buy yourself something nice during your older years – like that convertible you’ve always had your eye on. We’re sure the kids can work out the college planning for themselves. You deserve the treat.
Access the benefits of riders
You also have the option to add riders to your permanent life insurance policy, which allows you to customize your coverage. A life insurance rider can extend the benefits of your perm policy with options like accelerated death benefits, which give you access to finances before you pass should you fall seriously ill or are unable to work due to injury.
Another option is the long-term care rider. As we begin to live longer, sometimes there can be a shortage of access to care later in life–especially if your spouse isn’t around. A long-term care rider, however, solves this issue by giving you access to professional care later in your life should you need it.
Other popular riders include:
- Waiver of premium
- Guaranteed insurability rider
- Child term rider
- Return of premium rider
Essentially, you’ve got plenty of choice when it comes to extending the benefits of your life insurance policy if you decide you’d like more options included in your coverage.
Locked-in premiums
Permanent life insurance is pretty easy to follow, in that you only pay one premium each month that never increases. So if you can afford it when you first get a policy, there’s every chance that you’ll be able to afford it 30 years later.
A premium that never changes means you know exactly what comes out of your account each month, and you don’t need to worry about increasing premiums or your payments changing over time.
Let’s talk about the death benefit
Death might not be something anyone likes talking about, but being prepared can make a huge difference to the people you leave behind. It doesn’t mean you need to spend every waking minute thinking about it, though.
With a permanent life insurance policy, you get tons of benefits while you’re still alive. But you also get the security of a death benefit, which grows as you pay into the premium each month. So you can happily pay into your premium without worrying about what might happen, as you’re covered for the good and the bad.
A death benefit can also protect your business as it provides benefits if you’re a business owner. You can protect your employees and ensure everything keeps running. Most importantly, it allows you to leave a legacy and give the people you love and care about financial protection.
In conclusion: How to use life insurance benefits
There are plenty of benefits that come with a permanent life insurance policy, and you can use them in a variety of ways. The main thing is that you have options and use permanent life insurance benefits to enjoy a better quality of life and cover yourself for every angle.