If you’re wondering about the best ways to invest long-term, life insurance is one investment option worth considering. It is a powerful tool that can be used to achieve a wide range of financial goals, including estate and retirement planning.
A life insurance policy can provide both a death benefit and a cash value component, which can be used to supplement retirement income or fund other long-term financial goals. With life insurance, you can create a diversified portfolio that offers protection and growth potential.
Using Life Insurance for Investment in Estate Planning
If you’re wondering how to invest in life insurance, it’s important to note that life insurance can be a powerful tool for tax planning and wealth transfer. For wealthy families, life insurance can minimize federal transfer taxes while moving money through generations.
Gift tax, estate tax, and generation-skipping transfer tax (GST) all charge a flat 40% rate. Current law allows an exemption of $11.4 million before these taxes apply, which can quickly deplete a wealthy estate. Life insurance can maximize the efficiency of this exemption.
Life Insurance as an Investment in Retirement Planning
In addition to supplementing retirement income planning, life insurance can also be used as an investment. By using a cash value life insurance policy, you can efficiently supplement your monthly income. The policy first defers taxes during your high-income earning years, then spreads both the income and income tax over your lower-income earning years.
Cash value life insurance can also be structured in other ways to supplement retirement income planning. However, the primary purpose of insurance is to provide a death benefit in all cases. Section 7702 of the U.S. Internal Revenue Code requires insurers to maintain a sufficient risk element in the policy to qualify the product as life insurance under the tax code. So, a death benefit is always available as long as the policy is in force.
Key Considerations in Using Life Insurance as an Investment
When considering life insurance as an investment, it is important to keep the following in mind:
1. Understand what kinds of life insurance are available.
There are two main types of life insurance: term life insurance and permanent life insurance.
Term life insurance covers you for a specific period, usually 10, 20, or 30 years. Beneficiaries receive the death benefit if the policyholder dies during the term. If the policyholder outlives the term, the policy expires and there is no payout.
Permanent life insurance, on the other hand, provides coverage for the policyholder’s entire life. There are several subtypes of permanent life insurance, including whole life, universal life, and variable life insurance. These policies offer a death benefit as well as a savings component, which can be used as an investment.
2. Consider the costs.
Permanent life insurance policies are typically more expensive than term life insurance policies, so a larger portion of premiums goes towards insurance rather than investment. This can reduce the potential returns of the investment.
3. Take note of the risk involved.
The returns on permanent life insurance policies are not guaranteed and can be affected by market fluctuations. In addition, there are often fees and charges associated with these policies, which can further reduce returns.
4. Determine the liquidity of the investment.
A life insurance policy’s cash value cannot be accessed without incurring fees or penalties, unlike stocks or mutual funds. For example, you may need to take out a policy loan or surrender part of the cash value of your life insurance policy to withdraw funds. If you need cash in an emergency or need to make a large purchase, this lack of liquidity can be a significant disadvantage. Therefore, before investing in life insurance, consider your liquidity needs.
Ultimately, life insurance as an investment can be a viable option for some individuals, but it’s important to consider the costs, risks, and potential returns. Consulting with a financial advisor can help ensure that you make an informed decision that aligns with your financial goals and needs.
Secure Your Financial Future Today
If you’re looking for reliable insurance solutions in Glendale, CA, RMR Insurance Solutions, Inc. is the financial services firm you can trust.
As a premier financial service company in Glendale, CA, we offer a range of solutions that cater to your specific needs, including long-term insurance care. With years of experience in the industry and a team of reliable insurance experts, we have established a reputation for providing excellent financial services to our clients.
If you want to secure your financial future and protect yourself and your loved ones from life’s uncertainties, call us at (818) 326-9358 today.
