The main reason people purchase life insurance is for the protection and peace of mind it offers. The death benefit payout from a life insurance policy can help replace lost income, cover outstanding debts such as a mortgage or student loans, and provide financial relief for your family during a difficult time. However, there are other ways in which life insurance may be a useful asset for your financial portfolio. In this article, we’ll help you understand how to use your life insurance policy not only as a means of protection for your loved ones but also as a financial and investment tool.
Is whole life insurance a financial asset?
While all life insurance policies offer financial protection, some types of coverage, like whole life insurance, can act as financial assets as well. Whole life insurance, a type of permanent life insurance, has additional financial advantages due to its unique features and benefits, including:
Cash Value Accumulation: Whole life insurance policies have a cash value component that grows over time on a tax-deferred basis. You can access this cash value through policy loans or withdrawals and then use the funds for various financial needs, such as supplementing retirement income, covering emergencies, or paying for large expenses.
Guaranteed Growth: The cash value in a whole life insurance policy grows at a guaranteed, fixed rate, providing stability and predictability compared to other investment options. This can be a useful tool if you’re looking for a conservative, long-term financial asset with a guaranteed growth component.
Death Benefit: In addition to the cash value component, whole life insurance provides a death benefit that can serve as a financial asset for beneficiaries. Similar to whole life insurance, universal life insurance also provides a death benefit, along with the potential to build cash value over time.
When should you use your life insurance policy as a financial asset?
There are many situations in which it makes sense to use your life insurance policy as a financial asset. For example, if you have a high net worth, you may want to distribute the cash value of your policy in addition to the death benefit when estate planning to ensure your wealth remains protected and your family members receive equal portions of your estate.
If you’re approaching retirement age, you can also choose to borrow against the cash value of your policy to supplement your income. Borrowing against the policy’s cash value involves completing a loan application form provided by your insurer and making regular interest payments on the loan. Keep in mind that unpaid interest may be deducted from the cash value, potentially affecting the death benefit if left unpaid.
The cash value of life insurance can also be utilized as an asset for charitable giving, allowing you to make significant donations to charitable organizations or causes upon your passing. Whether you’re protecting your estate, planning for retirement, or donating to a meaningful cause, life insurance cash value can be a valuable financial asset.
SelectQuote Can Help You Get the Most From Your Coverage
Making the most out of your life insurance policy includes understanding how to use your coverage as a financial asset, especially if you have a permanent life insurance policy with a cash value component like whole or universal life insurance. Fortunately, SelectQuote is here to help you navigate your options so you find the plan and carrier that suits your needs and budget. Our licensed insurance agents can help you review rates from highly rated carriers in just minutes, making it easy to find the right policy for your situation.
