Life Insurance for
Living
More than two-thirds of American
families include life insurance in their Financial strategies.1
Many of these people probably think of life insurance as a source of
ready cash in the event that a primary wage earner's death creates a
Financial hardship – and you should, too.
You must have a need for a death benefit in order
for life insurance to be a suitable purchase. But there are some
less common uses for permanent life insurance that you may not have
considered.
Over time, your need for a life insurance death
benefit may change – perhaps because your children are grown and no
longer depend on your income, or your mortgage is almost paid off.
If these events occur, a permanent life insurance policy might play
a different role in your life.
Supplemental Retirement Income
A permanent life insurance policy has the potential to accumulate
cash value on a tax-deferred basis. After a period of time, you may
be able to withdraw any cash value up to your cost basis in the
policy, which is the amount of premiums paid, without incurring any
income tax liability.2
When your cost basis has been withdrawn, you may be able to borrow
against the death benefit. However, the amount of any outstanding
loans plus any interest will be deducted from the death benefit
after the insured has died.
Of course, this strategy might not be suitable for everyone. Access
to cash values through borrowing, partial surrenders, or withdrawals
can reduce the policy's cash value and death benefit, increase the
chance that the policy will lapse, and possibly result in a tax
liability. Consult your tax advisor regarding your personal
situation.
A permanent life insurance policy can help protect your family
when your children are young and later be tapped to help pay for
college or retirement. You might want to learn more about the role
that life insurance can play during your lifetime.
The cost and availability of life insurance depend on such factors
as age, health, and the type and amount of insurance purchased.3
Before implementing a strategy involving life insurance, it would be
prudent to make sure that you are insurable by having the policy
approved.
From:
David Waters
Phone: 215.875.8790
1) American Council of Life Insurers,
2006
2) Policy withdrawals are not subject to taxation up to the amount
paid into the policy (the cost basis). If the policy is a Modified
Endowment Contract, policy loans and/or withdrawals are taxable to
the extent of gain and are subject to a 10 percent tax penalty.
3) As with most Financial decisions, there are expenses associated
with the purchase of life insurance. Policies commonly have
mortality and expense charges. In addition, if a policy is
surrendered prematurely, there may be surrender charges and income
tax implications.
