Even though life insurance can be a bucket of money, it gets a bad rap in the financial world. The most common use of life insurance is to pay money out to the beneficiaries at the death of the policy holder. That is only one use of life insurance; there are many more reasons to buy life insurance. As you read the following 6 additional benefits of life insurance money keep in mind that life insurance proceeds do not go through probate.
#1 – College Funding
The money paid out from a life insurance policy death benefit can be used to fund college for the children of the deceased. Many parents buy life insurance for just that purpose; to take care of the child’s education if something were to happen to them before the children go to college.
If the policy is cash value policy, money can be borrowed against the cash value to accomplish the same purpose.
#2 – Pay Off The Mortgage
A mortgage payment can be a large financial burden to meet every month by oneself. Many couples buy term life insurance when they buy a new home to ensure that if one of them were to die prematurely the remaining spouse would not lose their home. This is especially critical if there are children in the home. The loss of a parent on a child is hard enough but to also lose the security of the home they are in would be even more devastating.
#3 – Pay Taxes
If the family never accumulated sufficient assets to cover all expenditures, the money received from a life insurance payout will come in handy if there are estate taxes to pay. Federal estate taxes are due nine months after death; many families are unable to access enough money to pay estate taxes. Life insurance provides easy money to meet that financial burden.
#4 – Supplement Retirement
If the life insurance policy is a cash value policy, that cash value can be borrowed against or withdrawn at retirement to help pay for retirement. Money invested in a 401(k) or IRA account can be taxable when withdrawn at retirement. The only money in a life insurance policy that is taxed is the earnings.
#5 – Charity
Gifts of life insurance policies to charities can provide income tax benefits. The proceeds that are directly donated can be a tax write-off.
Whether you have children and want to protect them or need to supplement your retirement plans, the money in life insurance may just help to accomplish both financial objectives.