Most responsible adults know that once you have a family that relies on you for financial support you should buy a life insurance policy. This blog post won’t cover why that’s important, because you probably already know that it is. Rather this post will discuss some unique uses of life insurance that you might not have heard of before, and might be useful to you.
Life Insurance for Pension Maximization
If you are planning to retire with a pension, or already have a pension, a life insurance policy can enhance your retirement income. How? When you retire you typically have a few different elections on how to receive your pension income. For example you can choose to take a higher monthly payment that stops upon your death, or a lower monthly payment that lasts for your life as well as your spouse’s life. There are pros and cons to both of these options. If you elect the higher payments, you could leave your spouse in a difficult financial situation upon your death. On the other hand protecting your spouse with payments that continue throughout their lifetime decreases your monthly retirement income.
Having a life insurance policy on the life of the retiree can create a win-win situation for you and your family. A policy allows you to choose the higher monthly income, while protecting your spouse with a lump sum death benefit upon your death. Essentially you are taking advantage of a higher monthly income and providing financially for your spouse at the same time. Without a life insurance policy this would not be possible.
Life Insurance for Legacy Planning
While most people think about life insurance for protection of your income for your loved ones, you can also use life insurance for planning your legacy. What impact do you want to have on the world upon your demise? Do you want to leave your children an inheritance? Is their a cause or charity you would like to support? Life insurance can be a vehicle that you use to fund these goals upon your death.
Life Insurance for Business Purposes
If you own a business, life insurance can be an important component in keeping your business running when an unexpected event occurs. For example if you have a business partner, you should have a buy-sell agreement which would detail what would happen in the event one of your became disabled or died and could not run the business. Typically this agreement is created so that a valuation can be assessed in the event one owner dies which would allow the other partner(s) to buy the business, instead of becoming partners with the deceased owner’s family. In order for a buy-sell agreement to work properly, it needs to have money to fund the purchase of the business should one owner pass. Life insurance on the lives of all the business partners/owners creates the money used to fund a buy-sell agreement.
Another use of life insurance in business is Key-Man insurance. For example if you have an employee in the business that is very valuable, so much so that losing that employee will cost your business money, consider a key-man policy. A key man life insurance policy allows the business to purchase a life insurance policy on the key employee and collect a death benefit upon that employee’s death. This would provide money to the business that might be lost due to losing the employee until they can hire someone else to replace him/her.
Life insurance can also be used as collateral for a business loan. When the SBA (Small Business Administration) provides loans to small businesses, they require a life insurance policy on the life of the business owner, which is used as collateral on the loan. This protects that the SBA can recover their money should the business owner die without repaying the entire loan.
Besides the common uses of life insurance that most of us know, life insurance has many other uses. For example, wealthy individuals also use it, as a way for their estate to pay estate taxes owed upon their death. Hopefully by reading this article you have learned about the importance of life insurance, and potentially how you may be able to use it in your life.