Life insurance can be an important part of your financial strategies, helping to ensure a more secure financial future for your loved ones when you're gone.
Not only does life insurance help cover unexpected final expenses—it can also provide your family a financial safety net or even serve as an inheritance.
Some of the uses for life insurance benefits you might want to consider include:
Paying final costs: LifeHappens.org notes that life insurance policy benefits can be used to pay many common final expenses, including funeral or cremation costs, medical bills not covered by health insurance, estate administration fees or other unpaid obligations. Even expenses such as final credit card bills or a mortgage balance can be covered by your benefit.
Paying off debt or replacing income: Some life insurance policies enable you to build a cash value that can be withdrawn or borrowed against, the I.I.I. says. According to LifeHappens.org, such payouts can enable you to secure college educations for your children, buy a home, start a business or serve as supplemental income. Cash value distributions are tax-free, as long as the policy is in force, but other rules may apply depending on your policy. Withdrawals and loans may reduce the death benefit and cash value. Be sure to consult with a financial professional any time you're looking to make distributions from a life insurance contract.
Inheritance: The Insurance Information Institute suggests buying a policy with a named heir as a beneficiary as a means of securing an inheritance for your loved ones. The death benefit can also serve as a supplement to other inheritance funds you may wish to leave your heirs.
Paying federal or state estate taxes: Your heirs may face an estate tax upon receiving their inheritance, depending upon the state of residence and the amount they inherit. The I.I.I. suggests that life insurance benefits may be used to partially or completely offset this cost for your heirs. Consult with your life insurance provider or a financial professional for more information on your projected estate tax impact and life insurance benefit.
Charitable contributions: For the philanthropically inclined, life insurance policies can be created with your favorite charity as a named beneficiary, the I.I.I. says. This can help ensure your philanthropic goals are met after you pass, and that defined benefits are provided to your charity of choice - even if you don’t have a very large nest egg or estate otherwise.
Discussing your financial goals with a life insurance agent can help you clarify the right type of policy and benefit to meet your needs.
Published: April 2014