Life Beyond Term Insurance

When talking to people about life insurance, I hear people tell me that they do not need life insurance because they get it through their job (what if you lose that job and you are now older and un-insurable?), that universal life insurance product is too expensive (it should be a vehicle to shelter some money from taxes, like your 401K does or to last you for the rest of your life), and my all-time favorite excuse not to have life insurance: “it gives my spouse motivation to off me (?).”

There are products beyond these excuses that can give you a tax free death benefit and also provide you with a way to plan for retirement, or for potential long term care needs.  It can be a way to defer taxation and not pass taxes onto your loved ones.  There are so many great things about life insurance that can outweigh peoples excuses not to have it.  In the articles below, we discuss two ways to use life insurance that you may not have thought of.

There are two different types of life insurance: Term and Permanent.  Term is inexpensive and will cover you for a duration usually of 10, 20 or 30 years.  Term insurance does not have any cash value, so once your term is over, and if you are still alive, all the money that you paid into it is gone.  This is not a bad thing as your money was spent to protect you in case something bad happened.

Most people, when they think of insurance, think of term insurance.  Term insurance is the cheapest way to get the most amount of coverage.  How much coverage do I need?  Ask yourself this:  “If I was to die today, how much money would I want my family to have? Do I want my spouse to have to go right back to work?  Do I want to pay for some or all of my children’s college?”.  Click here to determine how much insurance you need to reach these goals.   Some people who are earning between $65,000 and $95,000 a year think that $250,000 of life insurance is enough; but if you passed away today and you wanted your family to maintain the same standard of living that they are used to, this money would run out in 3.5 years (and that does not cover college expenses for your children).

Permanent insurance is designed to last your entire life. Yes, permanent insurance cost more to get the coverage, but it is designed to last for many more years.  Also, the money that is put into the policy can be used to fund retirement or long term care needs.  You can borrow money out of the policy to buy a car or fund a wedding.  There are products for people that are aggressive investors and for the more conservative investors.

Permanent insurance is about savings.  If you have a 401k contribute to the company match then take a look at funding a permanent life insurance plan.  The savings account in the policy is protected from loss when the market takes a hit. Earnings grow tax deferred and distributions from the savings account are designed to be tax-free.  Unlike making deposits into a Roth IRA, a permanent life insurance policy does not limited to the amount you can put into it each year.  You are not told when you have to take money out and not penalized for not taking money out.  Another unique feature of permanent insurance is the idea of uninterrupted compounding.  When you access the cash in retirement or before retirement, your loaned-out cash will continue to earn interest like it never left the account.  As far as I know, a traditional retirement account cannot do this for you.