How can you use a life insurance death benefit while you’re still alive? If you’re guaranteed to receive it, you can. It’s like finding buried treasure. The chest that you’ve been filling yet storing away can be opened and used.
The death benefit that is provided by whole life insurance is guaranteed to pay out as long as you maintain the policy. It’s a guaranteed asset the moment the policy is opened, or in-force. Think about that for a minute. You did not save additional money nor did you invest better and receive a higher rate of return. You added no risk yet upon your death your beneficiaries will receive the proceeds of your death benefit…guaranteed. This is not offered by any otehr financial vehicles except annuities and other forms of life insurance. However, it is unlikely that you will receive a death beenfit with term insurance. Since premiums get astronomically expensive during the latter years of life, most are either converted or dropped. In fact, only 1% of term policies ever pay a death benefit. Therefore, this discussion will be centered around whole life insurance.
The death benefit can become an instant legacy or inheritance left to younger generations. Businesses use the guaranteed proceeds to recoup benefit expenses paid to key personnel. Financial planners use the guaranteed death benefit to recover the loss of assets from estate taxes. There are many ways that your life can change if you knew that your family, business or estate would receive funds upon your demise.
Let’s take one example: Let’s assume that you wanted to leave your children with your assets yet you wanted to increase your retirement income. By utilizing a properly funded whole life insurance policy you could tap into the equity of your home via a reverse mortgage. The monthly payments that you receive from a reverse mortgage are tax-free and you are guaranteed to receive payments for life, similar to an annuity. You can spend down your home equity knowing that the death benefit will replace it upon your death, all while increasing your tax-free retirement income.
When you do pass away your beneficiaries have the choice of paying off the home or selling it and retaining the income tax-free death benefit for other purposes.
These are some examples of the living benefits of a death benefit. Whether for business or personal use, the guaranteed death benefit enhances strategic business, tax, investing and retirment planning.
Scott Storace
Tags: guarantee, life insurance, tax benefits, tax-free, whole life
