With so many types of life insurance on the market, it can be difficult to discern which type of policy is really the best fit for your situation. Some people even sign multiple contracts, because they are trying to meet a variety of needs. And while the primary purpose of life insurance is often believed to be replacement of lost income and protection of your loved ones, in the event that something happens to you, the truth is that some types of life insurance also function as an investment.
In particular, for those who are already maxing out retirement plan contributions, or are investing in other ways, a cash-value life insurance plan provides specific benefits that round out their portfolio.
What is cash-value life insurance? With a more typical life insurance plan, you make premium payments for a specific period of time, and if you die during your contract your beneficiaries will collect the benefit. That’s pretty basic and straightforward, and in this sense life insurance offers valuable protection to your loved ones.
However, a cash-value life insurance plan can provide many additional benefits. With this type of insurance contract, you can make payments above your regular premiums, and the policy will build cash value. You can access this money during an emergency, or borrow against it.
Since assets passed through a life insurance policy are not subject to estate or income taxes, this type of policy can provide obvious benefit to those of you who expect to pass on significant assets to your heirs.
If you do decide to purchase one of these life insurance policies, consider following these guidelines:
- set it up like an investment from the beginning
- minimize the death benefit
- overfund the policy to the MEC line
- minimize fees and expenses
- fund the policy annually (instead of monthly)
- pay up the policy as soon as possible, to minimize required future payments
- divert only a reasonable percentage of your assets to this investment vehicle
Keep in mind that the above are simply some general tips, that apply to many (but not all) situations. For more personalized guidance, meet with us to discuss cash-value life insurance in more detail. We can help you decide whether making this move will provide the benefits you expect.