How Life Insurance Fits Into Financial Planning
As you think about financial planning, you’re probably thinking about saving for emergencies, investing for the future and saving for retirement. But have you ever thought about how life insurance can help you do that? Life insurance can be a flexible financial tool that can help you do all that and more!
When you buy permanent life insurance, in addition to the death benefit, you get four distinct advantages that make it one of the most flexible financial assets you can own.
- Access to money when you need it. Much like other assets you may own, such as a home or land, permanent life insurance will build a cash value that grows over time. As it does, you can use that cash value to help pay for other priorities, such as making a down payment on a home, funding a child's education, starting a business or supplementing retirement income.
- Cash for emergencies. Because there are no restrictions on how you can use the cash value, it's a great way to cover unexpected expenses, such as medical bills or home repairs—instead of running up credit card debt or cashing in other assets (such as investments or retirement funds), especially if the market is down.
- Guaranteed growth and tax benefits. The cash value of a permanent life insurance policy increases every year—guaranteed. It will never go down in value and is not affected by fluctuations in the stock market. The cash value also grows tax free and in most cases is available income tax free when you make a withdrawal or take out a loan against the policy's cash value. And when you die, the death benefit passes to your beneficiaries income tax free.
- Once you’re in, you have a lot of options for your future. You don’t always have to keep the type of life insurance you initially buy. Many life insurance policies come with the option to convert to different types of policies or even to buy more insurance in the future.
Why would you convert to a different type of policy? Actually, it’s quite common. Many people who are starting out begin by buying term life insurance (which is typically less expensive than permanent life insurance but doesn’t accumulate cash value) and then later convert it to a permanent life insurance policy. When you convert, the insurance company will consider you to be as healthy as when you initially bought that term policy.
Another benefit is the ability to purchase more insurance in the future based on your health when you purchase the first policy.
As you can see, life insurance can provide far more than just a death benefit. It also becomes an asset you own that provides peace of mind—but also value that you can use in your lifetime. And the sooner you get started, the better.