You may already know how life insurance works – when you die, it provides money to the people who depend on you. However, what you may not know is that it can also do much more. So the question is, which policy best fits your needs?
There are two main types of life insurance policies; Term Policy, is used for short-term needs, usually thirty years or less while a Permanent Policy which tends to last indefinitely. Knowing this, let’s talk about the different and powerful ways life insurance can help you.
1: Provide Money to Help the People You Love
You work hard in life to provide for your family and ensure them a good future, but what will happen to them when you die? Who’s going to be in charge of paying the bills? Or pay for your kids or grandkids college education? Life insurance provides them with a sum of money to help them meet their financial needs.
2: Leave a Legacy
Did you know that a portion of the death benefit from a life insurance policy can be used to pay any taxes that may be due on your estate upon your passing? Typically, your beneficiaries won’t have to pay any taxes on the money they receive from your life insurance policy, per IRC §101(a).
3: Create Another Source of Income, Especially for Retirement
One of the wonderful benefits of many life insurance policies is the option to supplement your retirement income, which can be a significant expense. In fact, multiple permanent life insurance policies offer the potential to accumulate cash value which you can use any way you wish1, including as an extra retirement income, through tax-advantaged loans from your policy’s cash value.
4: Give Access to Money In Case You Get Sick
Now that our life span is longer than ever before, it’s important to think about an option that could provide benefits in the event of chronic or terminal illness, such as Permanent life insurance. In addition to tax-advantaged access to cash value,1 many policies offer an optional, added provision, called a rider,2 generally available at an additional cost, that lets you accelerate the death benefit while you are still living, which can be used for whatever you wish.
5: Allows Your Beneficiaries to Pay Less in Taxes
Taxes are a reality that challenges us all throughout life. However, it is reassuring to know that our Life insurance offers tax benefits. Both Term and Permanent policies will typically provide your beneficiaries with a tax-free death benefit upon your passing.
6: Protect Your Business
Every business owner has a lot to protect. A Permanent life insurance policy can help business continuation by facilitating the exchange of business ownership when dealing with retirement, disability, or death, when used in Buy Sell Planning Arrangements. Permanent life insurance can also be used to fund non-qualified retirement plans without depleting the business’ capital. A Term policy can also help protect your business.
There are very few things in life that we can control, but we can prepare for some of life’s unexpected events. That’s why we encourage you to keep learning more about the different types of policies we offer, so you can choose the one that can best meet your needs. As grandmothers like to say; “it is better to prevent than to regret”.
1 You can access your cash value through loans and withdrawals. In general, loans are charged interest; they are usually not taxable. Withdrawals are taxable only when you take more money out of the policy than you’ve paid in premiums. Loans and withdrawals may reduce or eliminate the death benefit payable to your beneficiaries.
2 Accelerating the death benefit will reduce the death benefit dollar-for-dollar and may result in beneficiaries receiving less or zero proceeds at death, if the death benefit is fully exhausted due to benefits paid out under the rider while the insured is alive.
Prudential Financial and its financial professionals do not give legal or tax advice. Please consult your own advisors.