Efficient financial planning is important, especially in today’s volatile world. Given the contingent nature of life itself, it seems prudent to opt for life insurance as part of an overall financial plan. While it may not promise you added years in age or a prosperous life per se, it can certainly elevate your worries and help your family lead a monetarily secure life, long after you are gone.
As rightly noted by several financial advisors, a financial plan is incomplete without life insurance. It is important to assess your monetary goals as well as the needs of your children, spouse, and co-dependents before locking in on a financial plan. Moreover, having a rough draft of the future chalked out in your head will not make the cut. It is important to act on your goals and invest in the right instruments as soon as practicable (READ NOW!)
How To Make A Financial Plan
You all have a long list of desires that will undoubtedly require an ample amount of money to fulfill. From your child’s education to your retirement fund, there are several life pursuits that you must cater to. And how can you do that? Yes, that’s right– with efficient financial planning!
A financial plan is unique to every individual. It differs widely based on the aspirations, liabilities, and earning potential of each person. A good financial plan in a broad sense should help you build a diverse portfolio and leverage your income for greater returns in the future. Needless to say, it should account for the cost of insurance (including life insurance premiums) as well. Why, you ask? Read on to know!
Why Life Insurance Is An Important Aspect Of Financial Planning
As stated above, financial planning is crucial to living a balanced and secure life. And since a lot of that has got to do with the wellbeing of your family and loved ones, it makes sense to build a plan in consideration of their needs. This is precisely what makes life insurance integral to financial planning.
Ideally, you’d like to live a full life and stay long enough to witness it all! However, who knows what the future has in store? Posthumously too, you would like your loved ones to lead a monetarily secure life and life insurance can make that happen for them.
Despite its many obvious benefits though, few see value in adding life insurance funding into their financial goals. Statistically speaking, one-third of Americans don’t have a life insurance policy. While health insurance, car insurance, and even home/office insurance have become a given in today’s times, life insurance sadly continues to lag behind.
However, you needn’t commit the same folly as the rest. Especially if you have others relying on your income to get by in life (think buying groceries, going to school or college, or just surviving), your death could spell complete doom for them. Thus, Life Insurance could be your savior or at least theirs.
What Life Insurance Entails And How It Works
Basically, life insurance means financial security and aid for your family. It’s activated in case you die prematurely and enables your loved ones to sustain a lifestyle in line with what you envisioned for them. They can use the benefit arising from your life insurance to pay for funeral expenses or your children/family can utilize it for education and general sustenance. It also means more immediate cash in comparison to real estate or other assets.
Like most other types of insurance, life insurance requires you to pay a regular or flexible premium to a life insurance provider, either on a monthly, quarterly, or annual basis. This will culminate into a lump sum amount, which will become payable at the time of your death. They will provide the claim amount to your beneficiaries or the people you’d wish to pass on the cash benefit.
There are also several types of life insurance policies you can opt for, such as permanent life insurance or term insurance plans. It is important to opt for the right policy and the right amount of life insurance in line with your needs, income, age, and several other factors.
Of late, whole life, permanent and universal life insurance plans have gained popularity as they offer ‘cash value’ in addition to ‘death benefit’. This happens when your premium is typically divided into three smaller pools: one for the death benefit, one for the insurance provider’s costs, and one for the cash value. The life insurance company will generally invest the latter in a conservative-yield instrument. As you pay the premium and earn interest on your policy, your cash value keeps on increasing.
How To Secure Life Insurance Funding And Make The Most Of It
While this article talks about the importance and type of life insurance policies, it is important to learn how you can fund it, while making the most out of it. Essentially, most permanent and whole life insurance policies carry cash value in addition to the death benefit. They pay the death benefit at the time of your death. On the other hand, the cash value grows over time on a deferred basis and you can use it in several beneficial ways.
While little known, gaining cash value from your life insurance can help you fund it. You can pay your policy premium or create a retirement fund of an investment portfolio with it. You can capture and utilize the cash value in your life insurance in several ways.
- Increase your death benefit: Instead of leaving the cash value from your insurance unused, extend it to your loved ones. You can do so by striking a deal with your insurance provider and asking them to increase the death benefit in your policy in exchange for the cash value.
- Utilize it to pay insurance premium: After you have amassed sufficient cash value, you can use it to pay a part of your life insurance premium. Again, this isn’t a given and you will need to ask your policy provider to make a suitable arrangement that lets you pay part of the premium using cash value.
- Take a loan against the amount of cash value: If you have gathered surplus cash value and do not wish to convert it into your death benefit, you may use it to meet your immediate requirements via a loan. Take a loan against your cash value amount to meet travel or other goals. After all, life is also about living in the now!
- Withdraw the amount: While many may think that life insurance is only helpful in aiding your family and loved ones post your death, there is more to it. Thanks to the cash-value aspect of your life insurance cover. You can always tap into your accumulated cash value to supplement your financial needs. Depending on your policy, you can withdraw all or some of the cash value and seamlessly meet your financing goals.
- Enhance your portfolio or nest: With the help of substantial cash value in life insurance policies, buyers can invest more and grow their retirement corpus. While it is advisable to wait for at least 10 to 15 years before tapping onto cash value for growing retirement income, you can work out a plan with your financial advisor to make this happen in the best way ahead for you.
- Opt-out completely: While exercising this option would defeat the very purpose of the life insurance policy, you can go for it if you have immediate monetary requirements to fulfil. By opting to surrender your policy, you dissolve your death benefit and go home with the accrued cash value. This may also entail a percentage of surrender fees, which could lower your cash value by a margin.
It is imminent to account for life insurance when it comes to financial planning for more reasons than one. It is further untrue that life insurance will only aid your family post your death. You can use the cash value in permanent or universal life insurance plans to pay premiums, grow their retirement incomes, and even take loans for yourself. You can fund your very policy with the help of the returns achieved in the form of cash value. Barring term-insurance, most other life-insurance plans dedicate a part of your premium towards cash value. Talk to your financial advisor or investment planner to know more about life insurance funding today!