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Five Ways Life Insurance Can Help More Than You Think
December 4, 2017
It can help protect you & your family – plus serve as a flexible, practical financial tool
You're probably familiar with the main benefits of life insurance. The right contract can help cover funeral expenses, pay off debts and replace your income if you die. In short, it's a powerful way to protect your loved ones.
That sense of assurance is critical. But it's not all that life insurance can do for you. Here are five ways it can help you meet your financial goals.
1. Save cash – now & later.
It's something everyone grapples with: How can you save enough for today's expenses – and tomorrow's needs?
You might not realize it, but permanent life insurance can help you answer that question. How? By letting you set aside money on an income tax-deferred basis for as long as you hold the contract. Doing so can allow you to supplement any funds you've set aside in your 401(k) or IRA accounts.
As long as the required premiums are paid, permanent insurance provides death benefit protection. It also has the potential to build equity in the form of cash value, which can be accessed during your lifetime to help address financial needs.1 And, if you cancel the contract, you'll receive the cash value that’s available after you pay any outstanding loans or contract fees.
2. Set up protection for today & tomorrow.
When you're young, you might not be able to afford permanent insurance. But you have another option: term life insurance, which provides pure death benefit protection and tends to be less expensive than permanent – a key consideration when you're just starting out.
And once you're ready, you may be able to convert that term contract to permanent insurance.
In addition, term insurance can be relatively inexpensive. "It takes very few dollars for someone in their 20s or early 30s to get a lot of life insurance," says Brent Fassett, a Thrivent Financial representative in Baxter, Minnesota. "Often, even for people with modest incomes, the cost of disability income insurance and life insurance together may be only 0.5% to 1.5% of income at this age."
3. Flex with your needs.
It's a fact of aging: Your insurance needs tend to change throughout life. You may get married. You may have children. Or you may face a disability at some point. Insurance can evolve alongside you. In fact, it's flexible to help you navigate many of life's changes.
How? One way is to add features called riders to a life insurance contract. Typically provided for an additional premium cost, they may allow you to purchase additional insurance or help cover payments if you're temporarily unable to work.
Al Todd III, a Thrivent Financial representative in Allison Park, Pennsylvania, often recommends that parents add a rider called a guaranteed purchase option to their child's insurance contract. That allows the child to purchase more insurance later without providing evidence of insurability. He offers the example of a Thrivent member with a child who developed a health condition that would have left him uninsurable. A guaranteed purchase option rider allowed him to buy more insurance as he grew older.
Todd also often recommends a rider known as a waiver of premium, which covers the cost of insurance premiums if you become disabled and can't make payments. (To qualify, the disability generally must leave you unable to work.)
4. Cut your tax bill.
If you find yourself with a surplus of retirement funds not needed for living expenses, for example, consider the tax advantages of life insurance.
"Most people get to a point where they look at their portfolio and think, 'I've made it, I'm going to be comfortable for the rest of my life,'" Todd says. "And they never consider the impact of taxes."
For couples near to or in retirement, Todd sometimes advises to move a portion of their savings from an IRA2 into a life insurance contract. "That could ultimately result in a much higher percentage of those assets staying in the family," he says.
The cash value of life insurance grows income-tax deferred and the death proceeds
generally pass on income tax-free to beneficiaries. However, it's important to remember
that inheritance and estate taxes may apply.3 Be sure to work with your
financial representative and tax advisor to understand your particular situation.
It's also important to note that Thrivent doesn't offer tax advice or services, so you may want to talk with your attorney or tax advisor for more information on this topic. He or she can help you better understand your options.
5. Finance the future.
A 2017 study by the Life Insurance Marketing and Research Association (LIMRA) and the nonprofit organization Life Happens found that 54% of Americans would have trouble paying living expenses immediately or within several months if the primary wage earner died.
That's a troubling finding. But keep in mind that it only factors in everyday living expenses – and not emergency medical expenses, job losses and the like. And that's where having the right amount of life insurance can be a tremendous help, and also provide a sense of assurance.
In sum, life insurance can play a flexible, valuable role in your long-term financial strategy. And it can give you and your family freedom from worry about your future.
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1 Loans and surrenders will decrease the death proceeds and the value available to pay insurance costs which may cause the contract to terminate without value. Surrenders may generate an income tax liability and charges may apply. A significant taxable event can occur if a contract terminates with outstanding debt. Loans and partial surrenders on contracts classified as modified endowment contracts (MEC) are taxed on gains coming out first and may be subject to a 10% penalty tax if made prior to age 59½. Contact your tax advisor for further details. Loaned values may accumulate at a lower rate than unloaned values.
2 Withdrawals made prior to the age of 59½ may be subject to a 10% federal tax penalty.
3 Under current tax law [IRC Sec. 101(a)(1)], death proceeds are generally excludable from the beneficiary's gross income. However, death proceeds may be subject to state and federal estate and/or inheritance tax.
This is a solicitation for insurance.
A Thrivent Financial representative may contact you. Life and disability income insurance have exclusions, limitations, reductions of benefits and terms under which the contract may be continued in force or discontinued. For costs and complete details of coverage, contact your Thrivent Financial representative.
THRIVENT FINANCIAL IS THE MARKETING NAME FOR THRIVENT FINANCIAL FOR LUTHERANS.