You may wonder how a life insurance policy which is primarily designed to help those you leave behind somehow gets you out of trouble. It’s a very good question that not enough people ask themselves when considering the value and benefits that life insurance brings. However, there are good reasons why you should choose life insurance to keep you and your family out of trouble that go beyond the normal coverage of funeral expenses and paying off debt.
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Increase Your Pension Potential
If you have to use your savings or pension in ways that have nothing to do with your retirement, then you can use your life insurance policy as protection. For example, if medical expenses are forcing you to take a second or reverse mortgage, you can pay into your life insurance policy with the mortgage to maintain the value of your home. Plus, if you should pass away while your pension is very low to non-existent, then having a substantial life insurance policy can provide a buffer that will pay a considerable amount to the beneficiary.
Pay for College
This is for those who have chosen a whole life policy which can be placed towards the expenses of college for the beneficiary. Although a 529 or college fund is arguably better, the advantage of a whole life policy is that financial aid programs do not consider it to be an asset when calculating for grants and benefits. However, it will be there for them in case something happens to you which will provide a little piece of mind.
Transfer the Policy
Although there are some interesting rules that you must traverse, it is possible to avoid the real estate taxes that may be levied against the policy itself by transferring it to another person. In this manner, when you pass away the policy becomes a part of the inheritor’s income without any normal or estate taxation. This is because the money used to build up the premium was already taxed and under another person it is not considered part of the estate. Another way to achieve this goal if you are not comfortable with transferring the policy is by placing it in an irrevocable trust. This way, it will do basically the same thing without being taxed or considered part of your estate.
Use it as a Fund Bequest
Did you know that the money built up in your life insurance can function as a stand-in for a cash asset? This is a great way to use your life insurance policy in case a stand-in for an asset is needed. For example, if the property you own is more valuable than the savings you have on hand and there is a desire to keep the land in the family. Getting a life insurance policy that is equal to the value of the land means that one child can get the land and the other can get its cash value through the life insurance policy.
These are just a few ways that your life insurance policy can keep you out of trouble when it comes to money matters.