When people purchase life insurance, what’s mostly on their mind is the security that it will provide to their heirs when they pass on. What they don’t know is that there’s more to life insurance than just replacing one’s income. There are other ways you can leverage life insurance for financial purposes. Let’s take a look at some of them:
Funding a business
Are you struggling to secure a loan for your start-up? Or do you need a cash injection to save your fledgling business? If you have life insurance, then you’re in luck. The cash value to the life insurance can act as your personal bank and save or fund your business. In fact, successful business people have used this trick to save their businesses. J.C. Penney overcame the Great Depression’s effect on his company by using his policy to borrow against his cash value. Other business magnates such as Ray Kroc and Walt Disney used the cash in their policies to start their businesses.
Due to your untimely death, your heirs might be forced to sell some assets to cover federal taxes. However, if you had life insurance, this would be covered as the life insurance provides the required money that settles the tax obligations.
Financial stability for the next generations
When you have whole life insurance, you will be in a position to give basic life insurance for your children or grandchildren. Additionally, the cash value will keep on growing on a tax-favored basis. It can then be used to help foot college education, pay for a wedding or even as a down payment to a home.
You can leverage your life insurance by creating a life insurance trust that is irrevocable. It comes in handy in estate planning. When your proceeds are placed in a trust, they will be exempted from gift tax, income tax, and generation-skipping tax. This is called an “ILIT” and is allowed by the IRS. However, ILITs are irrevocable though they can be changed legitimately. The money in the ILIT cannot be reached by lawsuits or creditors and once set up in the trust, it can go on for many generations while remaining tax-free.
With you gone, your heirs won’t have to pay the mortgage or estate taxes if you had life insurance. These are just some of the benefits that come with life insurance in this country.