Life Insurance Is About Life!

In addition to its death benefit, life insurance can provide flexibility to cover unexpected or expected expenses now and in the future.

By Meg Muldoon, J.D., LL.M.

When people think about life insurance, the death benefit is usually the first thing that comes to mind. Logically, that’s because the primary purpose of life insurance is the protection the death benefit provides to loved ones and assets in case the unexpected happens.

Personally, I’ve seen the importance of life insurance first-hand. My father passed away when I was in my twenties, leaving me the majority of his life insurance. I used some of the death benefit to pay off student loans, purchase a home and save for my future.

Life insurance is about caring for loved ones, but it can also help care for your client. Permanent life insurance isn’t just about the death benefit. It also builds cash value that can be accessed at any time, for any purpose. These “living benefits” can be used to address both life’s challenges and milestones.

The year 2020 has certainly presented some challenges. Owning a permanent life insurance policy can provide an additional source of funds for the unexpected. For example, policy values can be accessed to meet expenses and supplement income while caring for a family member. A permanent life insurance policy may also offer other features that can provide clients and their families with a financial safety net if the insured becomes chronically ill.

The cash value of permanent life insurance can also help celebrate lifetime milestones such as helping to fund a college education, covering wedding expenses, supplementing retirement income and meeting other personal needs.

Funding College

Permanent life insurance is a compelling alternative to other college savings vehicles. It offers a good return and it’s stable. There’s liquidity, because it doesn’t have to be used for a specific need, and loans from its cash value are generally tax-free.

Clients also have the flexibility to use the cash value for whatever they want. If their child ends up getting a fullride scholarship to college, money isn’t trapped in a college savings plan that can only be used for certain expenses associated with education.

The cost of a permanent life insurance policy on a child is relatively inexpensive because the mortality is low. Plus, if the money isn’t needed for college, your client will have something they can gift to their child later, as a graduation present, for example. Other significant benefits include locking in their insurability when they are young and healthy and yielding more time for the policy to accumulate cash value.

Making A Lasting Gift

Clients can help their children or grandchildren get off to a good financial start by giving them the gift of a permanent life insurance policy. By funding the policy’s initial years, your clients can help the next generation secure a lifetime of protection and a financial resource that can help to fuel their dreams. Major life milestones, such as graduations, new marriages and starting a family, offer special giving opportunities. But there is never a wrong time for a client to consider giving the gift of permanent life insurance.

With the uncertainty of what lies ahead, permanent life insurance not only offers the death benefit to protect loved ones but can also provide flexibility to cover unexpected (or expected) expenses now and in the future.

Funding Retirement

It’s impossible to predict the market conditions a client may face in retirement, so it’s important to diversify retirement income sources. Permanent life insurance can provide supplemental income that isn’t tied to the market, making it a great addition to a comprehensive financial strategy.

If there’s a downturn in the market, clients can take loans or withdrawals from their permanent life insurance policy to mitigate risks until the market hopefully recovers. By diversifying retirement funding sources, clients can protect themselves and their family from unexpected turns.

Leaving A Legacy

Some clients may be concerned that their children and grandchildren will not be better off financially than they are and want to find a way to help increase the financial security of future generations.

If properly structured, permanent life insurance can positively meet your client’s planning goals for multiple generations. For example, I have permanent life insurance in an irrevocable trust for the benefit of my children. The trustee can access the policy values during my lifetime for my children’s needs. Eventually (hopefully many years from now), the death benefit will be able to provide them with a lasting legacy.

(This article is for informational purposes only and should not be considered as specific financial, legal or tax advice. Depending on your individual circumstances, the strategies discussed in this presentation may not be appropriate for your client’s situation. The information in this material is not intended as tax or legal advice. Always consult your legal or tax professionals for specific information regarding your individual situation.)

(Life insurance policies contain exclusions, limitations, reductions of benefits and terms for keeping them in force. Accessing cash values may result in surrender fees and charges, may require additional premium payments to maintain coverage, and will reduce the death benefit and policy values. Loans are income tax free as long as policy is not a “modified endowment contract” (MEC) and policy must not be surrendered, lapsed, or otherwise terminated during the lifetime of the insured. Policy must not be a modified endowment contract (MEC) and withdrawals must not exceed cost basis. Partial withdrawals during the first 15 policy years are subject to additional rules and may be taxable. Depending upon the amount of the premium (gift), gift taxes may be payable. The amount and structure allowed for gifting life insurance will vary based upon individual circumstances and is subject to underwriting.)