Money & Career
4 surprising ways to use life insurance
Money & Career
4 surprising ways to use life insurance
Most people buy life insurance to financially protect their family members in case they pass away. That will always be the primary function of insurance -- the big lump sum of cash people get when a loved one dies -- but there are other reasons to take out an insurance policy. Here are four different ways to use life insurance:
1. Use life insurance for your retirement savings
It might sound a little morbid, but some people take out life insurance on their parents, so when the folks pass away, they'll get money to help them through retirement. You need to do this when you're 30 and your parents are 60 -- the life insurance premiums will be a lot cheaper than when they're 80. Since people are living longer, the thinking is that they'll die, and you'll get the money, when you're older and closer to retirement.
2. Use life insurance to pay off debts
One big selling feature of life insurance is that it's not taxed. So when you die and your beneficiaries get a payout, the government won't go after them for a cut. Every estate has taxes and debts to pay so many people choose to use their insurance's payout to cover those costs. This would likely be a separate policy than the one for your family; otherwise, your children will be stuck sorting out your estate's bill.
3. Use life insurance to withdraw cash
Some policies, such as Whole Life, accumulate a cash balance over the years. You pay the same price every month for life insurance, but technically you should be increasing amounts as you get older. The difference between what you pay per month and what you should be paying creates a cash balance that you can withdraw. You have to pay it back, though -- if you don't, that amount, plus interest, is deducted from the life insurance payout.
4. Use life insurance to generate an income
Some policies, called annuities, offer retirees regular monthly payments. When you're younger, your payments are invested and grow in an account. At some point in the future, those savings get paid back to you. You can either get a fixed income or buy a variable annuity, which alters the payment based on how well the annuities' investments do. It's a great way to bring in extra dollars if you'll be short on cash in retirement.
Clearly, life insurance isn't just about leaving your family money after you die. But the earlier you take out a policy, the cheaper it will be. So think about how you might want to use insurance and then purchase a plan now.
1. Use life insurance for your retirement savings
It might sound a little morbid, but some people take out life insurance on their parents, so when the folks pass away, they'll get money to help them through retirement. You need to do this when you're 30 and your parents are 60 -- the life insurance premiums will be a lot cheaper than when they're 80. Since people are living longer, the thinking is that they'll die, and you'll get the money, when you're older and closer to retirement.
2. Use life insurance to pay off debts
One big selling feature of life insurance is that it's not taxed. So when you die and your beneficiaries get a payout, the government won't go after them for a cut. Every estate has taxes and debts to pay so many people choose to use their insurance's payout to cover those costs. This would likely be a separate policy than the one for your family; otherwise, your children will be stuck sorting out your estate's bill.
3. Use life insurance to withdraw cash
Some policies, such as Whole Life, accumulate a cash balance over the years. You pay the same price every month for life insurance, but technically you should be increasing amounts as you get older. The difference between what you pay per month and what you should be paying creates a cash balance that you can withdraw. You have to pay it back, though -- if you don't, that amount, plus interest, is deducted from the life insurance payout.
4. Use life insurance to generate an income
Some policies, called annuities, offer retirees regular monthly payments. When you're younger, your payments are invested and grow in an account. At some point in the future, those savings get paid back to you. You can either get a fixed income or buy a variable annuity, which alters the payment based on how well the annuities' investments do. It's a great way to bring in extra dollars if you'll be short on cash in retirement.
Clearly, life insurance isn't just about leaving your family money after you die. But the earlier you take out a policy, the cheaper it will be. So think about how you might want to use insurance and then purchase a plan now.
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