Life insurance is something you buy so that your family and kids don't have to pay for your funeral, right?
Turns out, life insurance is much more than most of us think it is. Here's what you need to know about how life insurance can help you create wealth for you and your family.
Make sure your term insurance will cover your future income
Term life insurance (as the name implies) is meant to be temporary. Let's say you earn $80,000 a year and want a lump sum of money that can withstand a 4% annual withdrawal. In that scenario, you'll need two million dollars. If you don't have that money available, you can make up the difference with term insurance that will cover you until retirement age.
Don't forget about whole life insurance
There are many forms of life insurance, but whole life insurance is the only kinds that guarantees the premium, death benefit, and cash value. If you take out a whole life insurance policy, you'll have guaranteed access to a cash value that you can use for anything you'd like, long before retirement.
Whole life insurance is particularly relevant for married couples who would experience an income reduction in the event of one spouse's death. It can also be a great way to provide your children or grandchildren with an asset they can use as collateral.
Plan to stop paying for it
You probably don't want to be paying bills in your retirement — and with a whole life insurance policy, you don't have to do that. Especially if you structure the policy as a 10-year plan. If term insurance is like renting an apartment, whole life insurance is like taking out a mortgage on a house. If you structure it like a 10-year mortgage, you'll be done paying for it in that timeline and then have your coverage forever while the plan gains equity.
Make it about you
No two life insurance plans have to be the same. Much like other retirement plans, you can adjust your contribution limit and death benefit. This means you can customize a life insurance plan that works with your specific financial situation and will help you achieve your goals in the future.
The cash value is always available
This is one of the most common misunderstandings about life insurance — that money from a policy only becomes available upon death. In fact, with whole life insurance, your funds will be available for your entire life.
There is a death benefit
We understand — no one wants to think about death but life insurance is designed to help make life easier for your loved ones when you pass away. And with a whole life insurance plan, your heirs will receive the full death benefit regardless of the amount you have contributed. Let's say you pass away after having contributed $15,000 to a whole life plan with a value of $200,000 . Your beneficiaries will receive the entire $200,000. Contrast that to a savings account, where your $15,000 would be worth only as much as you'd contributed, plus the minimal interest the account accrued.
What's the takeaway?
It's time to stop thinking about life insurance as something that's only valuable once you die. Life insurance, when structured correctly, can be a strategic source of income for you and your family.