by Jim McKinley
Buying life insurance is equal parts good planning and loving consideration of your family’s future needs, and it’s a comfort to know that they’ll be provided for after you’re gone. But you may not be aware that it’s also a potential source of support for you as well as your family, with financial benefits that can come in very handy should you be hit with medical bills later in life, unexpected living expenses, loss of income, or need help with funeral costs. All that money you pay into a life insurance policy creates a robust, ongoing financial resource. Here’s how it can help.
Over time, a life insurance policy accumulates in value and can be converted for any number of uses, from a family emergency to cash for a child’s college education or to provide needed income after retirement. The money is easier to acquire than a 401(k), and you may choose to access it in different ways. It can be used as an annuity to pay for living expenses or simply take the entire value of the policy in a cash sum, or you might elect to use a portion of the policy’s cash value and retain the remainder as a death benefit. However you choose to use it, the cash value of your policy provides a safety net that goes beyond the traditional utility of life insurance.
If you’re reluctant to use a life insurance policy as a source of income or as a “rainy day” fund for fear of taxation, don’t worry. Generally, there are no taxes on earnings to be paid by you or your beneficiaries. People often use the accumulated cash value of a policy in this way because the tax benefits are greater than when money is earned or withdrawn from other types of savings.
Consider dividend earnings: As a policyholder, you’re eligible for earnings through accumulated interest, which can be accessed on an annual basis. Think of it as a long-term investment without any of the risk you incur when playing the market through a broker, so regardless of market conditions, you can rely on having ready access to the accumulated value. It’s a risk-free investment and a safe source of cash for future needs.
The beauty of all this is that these benefits don’t go away as long as you keep up with your insurance premiums. It’s safe, reliable, and literally keeps you covered for life.
If you’re 50 or older, you can take out funeral insurance, which beneficiaries can use to pay for burial costs. It’s an affordable form of coverage (often available for as little as $5,000), there’s no medical exam needed, and the money is easily accessed by processing a claim upon your death. The money can be used to pay funeral expenses, which can be quite expensive.
The average cost of a funeral in the United States today ranges somewhere between $7,000 and $9,000, which covers a range of services, including embalming, a casket, and more. For those who are cremated, the cost averages between $6,000 and $7,000. Other expenses, such as a monument or flowers, are extra.
Critical illness coverage
Paying for care if you’re struck with a critical illness, such as cancer or heart disease, can be financially crippling, leaving you and your loved ones saddled with enormous debt. Your benefit from critical illness coverage is distributed in a lump-sum payment to offset expenses.
Life insurance provides you with an affordable and readily-accessible source of savings when you most need financial help. It’s a highly valuable, tax-free source of assistance for you and your family both during your lifetime and after your death.
Jim occasionally writes for Richmond 2day covering financial topics.
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