You could say life insurance is pretty straight-forward and simple. People get it to make sure that their families are protected against financial hardship in case something unfortunate happens and they pass away. But just because it looks simple, it doesn’t mean that it is. Life insurance is in fact much more complex and it can offer you other benefits, such as protecting your finances against certain risks and giving you access to additional cash.
Here are some things that you may not have known about life insurance:
1. You can take out cash value loans
You life insurance policy’s cash values allow you to take out cash value loans, if you need money for things like taxes or other expenses. These cash value loans are tax-free. They are loans and they come with interest. But you pay the interest back to your policy, rather than the lender.
2. Cover your mortgage with your life insurance
Term life insurance covers you for a limited period of time. People usually use it when they have mortgages and they want to make sure that their families will avoid financial troubles in case they pass away. You can select a term policy for the number of years that the debt will be outstanding. And that’s not all. You can also design it to have decreasing premiums, or with a death benefit that decreases over the years, just like a mortgage balance will.
3. It can pay your medical expenses
In the unfortunate event that a person is diagnosed with a terminal illness, he or she can access a percentage of the death benefit to pay for medical expenses and living expenses. This is called an Accelerated Benefit Rider. If you use it, it will decrease the death benefit.
4. Your heirs can get the money right away
When someone dies, their estate needs to go through probate, unless the assets are all in a trust. This means that the heirs will have to wait until after probate to receive the estate. But life insurance proceeds don’t need to go through this process, unless the estate is named as the beneficiary.
Life insurance can be simple, but it can also be a complex product which you can use to complement your overall financial plan. How you design your policy is entirely up to you.