Most people think life insurance is there to protect your family if you die before you retire, and that’s true. But with its unique combination of tax and non-tax benefits, life insurance is a versatile financial product that can also help protect other areas of your financial life such as your retirement savings and strengthen the financial security of those you love.
Life insurance can be used to meet a wide variety of post-retirement financial needs.
More than just death benefits
Life insurance could provide your family with money for a stable financial future and help provide the retirement fund you would have accumulated if you had lived. It can also help cover some or all of the medical and legal costs associated with dying. If you owe money to others, death benefits may provide the cash needed to pay them. If you’re a single parent, the benefits could provide the guardian you selected for your children with the money they need to continue raising your children. Death benefits could also create the cash needed to pay some of the bequests and charitable provisions in your will.
Defending your home and family
Life insurance may provide the funds to pay outstanding mortgage installments and keep your family in the home they love. If you have a child with special needs or a life-altering condition, death benefits may provide extra dollars to help secure their financial future without adversely impacting your other children. Life insurance can also help pay your children's education expenses if you were to die early. Sometimes it’s difficult to divide an estate equally. Your death benefits could create the additional cash needed to make sure each of your children receives an equal estate value, even if the assets they receive are different.
What about taxes?
Your estate could be responsible for a surprising variety of taxes to the federal, state and county governments. Fortunately, life insurance benefits can help provide the money to pay these taxes or can reimburse someone else who pays them.
Make sure you get something out of it
In addition to providing income tax-free death benefits1, cash value life insurance policies can provide benefits to policy owners while they are alive. A properly funded and well-managed cash value policy can be a versatile financial asset with the potential to provide financial flexibility and income tax-free cash flow during retirement2. Some states allow life insurance policy owners another valuable benefit: creditor protection. Because death benefits are often used to maintain the financial security of spouses and children, many states protect the cash value and/or the death benefit from the claims of creditors. Some insurance policies have another valuable feature: If you’re terminally ill and likely to die within six to twelve months, you could take some of the death benefits early. These payments are income tax-free, and can provide financial relief to cope with the expenses and emotional trauma of terminal illness.
A versatile financial asset for your retirement
Life insurance is a versatile, Swiss Army knife of a financial asset to help you maximize and protect many areas of your financial life, including your retirement assets. As always, your financial professional will be happy to help as you plan for your family’s financial security.
1Proceeds from a life insurance policy are generally income tax free and if properly structured, may also be free from estate tax.
2Income tax free distributions are achieved by withdrawing to the cost basis (premiums paid) then using policy loans. Policy loans and withdrawals may generate an income tax liability, reduce available cash value and reduce the death benefit or cause the policy to lapse.
This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice. All investments are subject to risk. We recommend that you consult an independent legal or financial advisor for specific advice about your individual situation.
The information herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.
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