How To Think About And Develop Life Insurance (II)
Posted by: Joseph Kuo | December 23, 2020
In Part I, we talked about the difference between term life insurance and permanent life insurance. We talked about reasons you would want life insurance, and that with term life insurance, your goal is to have sufficient coverage to replace your income during your working years. With proper planning, at your retirement you should no longer need life insurance, since you would have accumulated enough wealth to fund your goals.
So then, why should we consider permanent life insurance, even after we have met our goals through a term life insurance policy?
Help With The Foundation of Your Retirement
As you may know, permanent life insurance is typically a combination of insurance and investment, meaning that part of the premium goes towards the policy itself while the rest is put into a cash account that can be invested. The cash account can be borrowed against or be converted into an annuity when you retire. While there can be higher fees when investing via an insurance product, these products are designed to be less risky. Especially in retirement, it can be beneficial to have a diversified portfolio of investments that include insurance products. That way, when stocks are down during a given year, you can live off of the more stable investments while allowing your stocks to recover.
Use Permanent Life Insurance Proceeds To Help With Taxes
Proceeds from a permanent life insurance policy can help your spouse and heirs with estates tax. If you have a significant asset, such as a private business or real estate, that you want to keep within the family, estate taxes can be an issue. With estate taxes as high as 40%, proceeds from a permanent life insurance policy can be the difference between your heirs being able to keep a home or family business and having to sell it off to pay taxes.
Permanent Life Insurance Is Another Asset That Will Help Your Legacy
A permanent life insurance policy can serve as an extra useful piece to help with dividing up assets between heirs. For example, if you have a family business and one heir is clearly interested in continuing with it, you can use a permanent life insurance policy to help even out the asset distribution to your other heirs. Or, if one heir wants to continue living in the family home, you can use a permanent life insurance policy as an asset for your other heirs instead of having to sell the house.
In summary, permanent life insurance can be an important and useful part of your retirement and legacy.