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February 26, 2016

Uses of Life Insurance

Do you need life insurance?  How much do you need?  Do you have enough?  Many find themselves asking these questions at some point.  While life insurance is primarily used to protect beneficiaries from the financial burden caused by a loved one’s death, it is also a unique asset that can be used to solve many financial problems.  Here are some ways that you can use life insurance:

  1. Create an estate – If you are concerned about leaving enough money to your heirs, sometimes life insurance can be used to meet this need.  Your heirs can inherit the proceeds from the policy to provide for their ongoing expenses.
  2. Pay death taxes and other settlement costs – Depending on the size of your estate and how it is structured, the taxes you pay on your estate can be costly.  Sometimes life insurance can be used to give your estate the necessary cash to cover these expenses.
  3. Assist in the transfer of a business – If you own a business, you may want your successors to buy your business after you die.  However, buying a business from the deceased owner’s estate can often require a large amount of capital.  Proceeds from a life insurance policy may be a good option for giving your successors the cash they need to buy your business.
  4. Pay off a home mortgage or other debt – If you are looking to leave a home to a loved one that is free from mortgage debt, a life insurance policy may be a possible solution.  The proceeds from the policy can be used to pay down any remaining balance on the mortgage loan.  Similarly, life insurance proceeds may be used to pay off any remaining debts that you may leave so that your loved ones do not have to worry about them.
  5. Protect a business from the loss of a key employee – If you own a business, sometimes life insurance can be used to lessen the financial impact caused by your company losing a key employee.
  6. Replace or give a charitable gift – If you want to give an asset that has increased in value (i.e. artwork or a classic car) to a charitable organization, but don’t want the value of your loved one’s inheritance to go down, using a charitable remainder trust in combination with a life insurance policy might be a good option. The income lost by your loved ones from giving the assets to charity may be replaced by the proceeds from a life insurance policy.  Or if you prefer, you can simply use the proceeds from a life insurance policy to make a charitable donation and leave the assets behind for your loved ones.
  7. Equalize inheritances – If you are concerned about the possibility of leaving an unequal amount of assets to your heirs, a life insurance policy may be an easy way to make sure that everyone receives an inheritance of equal value.
  8. College fund for children or grandchildren – You can sometimes use the cash value of a life insurance policy to fund college expenses.
  9. Supplement retirement funds – The cash value of a life insurance policy can be used to supplement or accumulate additional retirement funds.
  10. Provide emergency funds – If a life insurance policy allows you to borrow against the cash value of the policy, it may be possible for you to use the policy as a source of cash to cover unexpected expenses.
  11. Accelerated death benefits – Some life insurance policies allow for the acceleration of death benefits when an individual is terminally ill.  This can give you the necessary cash that you need to pay for medical and other costs.  Tax incentives may also be available in these circumstances.

A Few Facts About Life Insurance

Statistics taken from US News:


Bottom Line: Life insurance is a flexible tool that can be used to meet many financial needs.  It is important to remember to consult with an attorney or financial advisor before executing any of these strategies.  They can point out the benefits and drawbacks in addition to helping you decide which strategy is best for you.

Life Insurance

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