How Life Insurance Can Be a Financial Asset

Life insurance generally comes in two types: term life and permanent life policies. While all life insurance policies include a death benefit, permanent life policies include what’s known as a cash value benefit. This feature allows you to accumulate a cash amount that you may access before your passing.

Permanent Life Insurance Policy Types

A key benefit of permanent life insurance policies is their cash value feature. The following are the four most common types of permanent life policies:

1. Whole life insurance—These policies typically accumulate cash value as you pay your premiums at a fixed rate.
2. Universal life insurance—Similar to whole life, these policies also accumulate cash value, but the death benefit and premium amounts are flexible. You’re able to adjust your coverage depending on your current needs and income.
3. Variable universal life insurance—These policies accumulate cash value depending on market investment options, which carries a greater risk to the cash value.
4. Indexed universal life insurance—The cash value component of these policies is built based on the performance of a specific index, such as the S&P 500. These are typically considered less risky than variable universal life policies because losses are capped, but so are gains.

How to Use Cash Value

After paying your life insurance premiums and growing your cash value, you have options for using those funds. You can use it to pay your premiums, which can help keep your policy after you stop working or retire. You may also borrow against it to use as collateral for a loan. You may also partially withdraw your funds to use in a variety of personal ways, but it’s important to repay the amount taken so that your death benefit amount isn’t reduced. When using your cash value, it’s important to consult your financial advisor to avoid coverage lapses or termination.

Accessing your cash value can allow you to:

• Pay for a large expense, such as a wedding, a home remodel or college tuition
• Pay for a down payment on a home
• Supplement your income after retirement
• Pay for an emergency or unexpected expense
• Pay off debt

Tax Advantages of Permanent Life Insurance

A major feature of the cash value component of permanent life insurance policies is that the interest and investment earnings aren’t taxed. Borrowing against your cash value is also tax-free if you don’t surrender or cancel your policy.

How to Access the Cash Value of Your Policy

Once you’ve decided to utilize the cash value feature of your policy, you can typically access the funds by taking out a loan from your policy, or partially or totally surrendering your policy.

Taking out a life insurance loan can give you access to cash with no restrictions on what you use it for, but you will need to pay it back with interest. This loan isn’t taxed as income, but if you do not repay the loan or pass away before it’s repaid, the death benefit is decreased, leaving your beneficiaries with less than your planned amount.

If you partially surrender your policy, you don’t need to pay back the money you take out. However, your death benefit is reduced, and you aren’t able to put the money back into the policy. A total surrender may allow you to access all your cash value, but you give up your entire policy and, therefore, the death benefit. This may also involve additional charges or taxes, so it’s important to consult your financial advisor and broker before deciding how to access your cash value.

Finding the Right Policy for You

Life insurance comes in many forms, and there’s no one-size-fits-all policy. While term life insurance policies offer basic coverage and a death benefit, permanent life insurance includes a cash value component that can enhance your financial portfolio and offer access to tax-efficient funds if needed. Contact [B_Officialname] today to get personalized guidance on coverage that fits your needs, budget and financial planning goals.

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Disclaimer: This article is for informational purposes only and does not constitute legal advice. Employers should consult with legal counsel or safety professionals for specific compliance recommendations.