You may have purchased your life insurance policy from us here at Cobos Insurance or another trusted insurance advisor years ago, months ago, or maybe you are currently in the market to purchase your first life insurance policy. No matter what your ownership timeline, we want to help you explore some options for your life insurance policy beyond protecting your friends and family from financial hardship in the event of your death. You can read our previous article on how to protect your family with life insurance to further explore ways to leverage life insurance to protect your family. If you are here to learn other uses and options for your life insurance policy, read on!
What can you do with your Life Insurance Policy?
The short answer to that question is, it really depends on what you would like to do with it. It is certainly something to consider prior to purchasing your life insurance policy, but if you have already done so, you have options as well depending on the type of life insurance policy you purchased. Do you want to accumulate an internal cash value as you pay your premiums? That is an option with whole life insurance, which can certainly come in handy down the road. The way that life insurance is structured, typically allows for any withdrawals or loans against your internal cash value to be done so without paying any income or capital gains taxes on that money.
One neat option you might have on your term life insurance, depending on the structure of the contract, is to receive all or most of your premiums paid in back to you at the end of the policy period if you don't use the death benefit. This can address the typical question of, "why should I pay for something that I likely will never use"! We would love to sit down with you and walk you through your life insurance policy to make sure you fully understand your options. If you haven't yet taken the time to get a life insurance quote, start here by getting a quick and easy quote…. then follow up with a phone call and directly speak with one of our expert insurance agents at (440) 233.6199.
What's the difference between Whole Life Insurance and Term Life Insurance?
- The biggest glaring advantage for term life insurance is that it is typically much less expensive rate wise than whole life insurance. So, if you are a younger person, it could be much more cost effective to purchase $250,000 worth of term life insurance than whole life insurance. The biggest downside of term insurance is that it will not pay out after a certain amount of time, but you will also not have to pay on the contract any longer either. Many advisors will mention that you should buy term life insurance and invest the rest of your money in other financial products, which could work for many people. Some people may prefer to pay their life insurance premiums while saving and investing some of that money at the same time rather than taking out a separate investment account, which is where whole life insurance would come in.
- The benefit of a whole life insurance policy is that it lasts your entire lifetime, and many whole life products accumulate a cash value inside of the policy as you pay your premiums over the years. You can use this cash value down the road to either withdrawal (typically tax-free) or take out a loan against (typically tax-free as well). If you think that the tax bracket for yourself and your family could increase before or during your retirement, an option like taking a tax-free withdrawal from your whole life insurance policy might make more sense than pulling money from a qualified retirement account that would be taxed on an income tax level. The downside is that it is expensive and you might be able to get a better rate of return on your money if you invested wisely over the years than putting more money into your whole life insurance policy.
What questions about Life Insurance do we frequently hear?
What is a Beneficiary?
A beneficiary is the person or entity that you designate to receive your death benefit, in the event of your passing. You can name family, friends, or even a trust for estate planning reasons.
Will my beneficiary have to pay income tax on my death benefits?
The answer to this question is that it depends on the size of your estate, however if it falls under the $5.5 Million mark currently it should in fact be tax-free to your beneficiaries
Do I have to have a medical exam? If so, what should I expect?
You will likely have to take a medical exam unless you opt for a traditionally higher priced option of an instant issue policy. The exam should be fairly simple, including taking a blood sample and taking your vital signs, along with height and weight measurements.
I currently smoke, but am in the process of quitting. Can I get re-rated down the road?
It depends on the insurance carrier that we place the life insurance policy with, but most companies will allow for you to be re-tested after the initial policy is put in force but typically not within the first year.
Can I buy more than one life policy?
You can but you typically get more "bang for your buck" when you just up the value on one policy rather than taking out an entirely separate policy. You may also have to take another physical exam, which is why it usually makes sense to use one policy. The caveat to that statement is if you need to use life insurance for a buy/sell agreement or other business arrangement where it would make sense to carry more than one life insurance policy.
I get life insurance from my job. Why should I buy a separate policy?
You need to check with your employer first, but if your job does not offer a portable life insurance policy (meaning you can take it with you if you leave your current employer) then you should seriously consider a separate policy in case you would ever leave the company or any other extenuating circumstances could apply. For more information on life insurance, check out our Life Insurance page!
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