July 30, 2010, Newsletter Issue #16: Additional Uses for a Life Insurance Policy

Tip of the Week

Life insurance policy death benefit proceeds are useful for many different purposes --including some that can be beneficial while you're still living.

Inheritance: In order to guarantee an inheritance for their heirs, some people purchase life insurance policies. They may even put the policies into a trust in order to gain more control over when the death benefits are given to the heirs. Spousal retirement funding: Life insurance death benefits have several different payout options. Some can pay out like an annuity, which makes them a great tool for additional retirement income for a surviving spouse. Source of tax-free loans: If you buy a life insurance policy that accrues cash values, you can tap into those cash values while you're alive and take tax-free loans. You must pay the loans back with interest; however, unlike a conventional loan, the interest is paid back to your account since you're the lender. Any portion of the loan that's not paid off upon death could reduce the death benefit awarded to your beneficiaries. Cash value savings: If you buy a whole life policy that accrues cash values, you can choose to surrender that policy and take the cash. While that means you'll no longer have a death benefit, you will have any growth your cash values have accumulated. Depending on the type of policy you have, that can sometimes amount to more than the premiums you paid in. Remember, any cash value you receive that's above the premiums paid is taxable.

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