Life Insurance as a Tool
When did you begin to think seriously about life insurance? When you got married? Had kids? If so, it's not surprising.
The moment someone else depends on you, life insurance becomes a priority because you want to make sure they'll be taken care of if something happens to you. Without your income, the proceeds from a life insurance policy can help them pay the bills, keep the house, put the kids through college or plan the wedding of your daughter's dreams.
To cover for those major life milestones, many people—especially when they're young and just starting out—buy term life insurance. Term insurance is the most affordable type of life insurance, but it’s temporary. Term insurance is designed to be in place only for a specific amount of time such as 10 or 20 years, often until the kids are out of the house and many of the major financial obligations are over.
But there are lots of reasons to keep life insurance well beyond your child-raising years and into retirement, which is why many people who start with term insurance convert some or all of their policy to permanent life insurance over time.
In addition to providing a death benefit, permanent life insurance builds equity (or cash value, as it's called) that grows tax-deferred and can be used throughout life to help pay for other financial goals. You can tap into the accumulated cash value, for example, to help:
- Make a down payment on a home
- Fund the launch of a business
- Pay off a large unexpected bill
- Pay for your child's college
- Supplement your retirement income
Because you can access this accumulated cash value at any time and for any reason, life insurance really is a tool you can use while you're living, throughout life.
Utilizing the cash values through policy loans, surrenders of dividend values, or cash withdrawals will or could: reduce the death benefit; necessitate greater outlay than anticipated; or result in an unexpected taxable event.