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What Role Does Life Insurance Play In Financial Planning

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Money makes the world go ‘round, both in the professional and private realm, and every individual with long-term financial dreams and goals should tend to meticulous financial planning in order to build a road map towards an affluent future. That said, financial planning is a complex and nuanced process involving many crucial steps and considerations, of which life insurance might find itself at the bottom of your list of priorities. However, every financial advisor worth their salt will tell you that life insurance is one of the key considerations you should take into account, and that it can influence your long-term financial goals, and how you achieve them. Let’s take a look at the role life insurance plays in your financial plan.

Securing finances for your loved ones

The essential benefit and a major reason why people buy life insurance policies is so they can create a secure financial backup plan for their family members or beneficiaries. Upon passing away, the policyholder’s accrued financial assets are released to their beneficiaries in a way that suits them best, such as monthly installments, or a sum payment. Opting for a permanent life insurance will allow you to build cash value over the years that will go beyond the death benefit, unlike the term life insurance which gives a death benefit for a specified number of years without accruing cash value. That doesn’t mean that you shouldn’t consider term life insurance, though, as it is less expensive than permanent life policies and it allows you to invest the remaining capital into other investment opportunities.

Cover the risk against debts and loans

One of the biggest concerns for parents throughout life is passing any outstanding debts or loans down to their family members. Nobody wants to find themselves resolving someone else’s financial issues and paying for the financial setbacks of their family members, which is why experienced financial advisors will advocate the procurement of a life insurance plan. Permanent life insurance policies have the benefit of debt and loan coverage, which means that the burden of outstanding debts and loans will not affect your loved ones should you pass away before setting the record straight. Some term life insurance policies can offer the same benefit, but only if the term matches the term of your outstanding debts.

A valuable saving and investment tool

Life insurance is not only a safety net for your family members in case you meet an untimely end – it can also be a valuable savings and investment tool. When considering your potential insurance policy, you want to opt for a plan that will grow over time, and allow you to benefit in different ways from regular payment of premiums over the years. Over time, your insurance policy should grant you guaranteed additions, compounded bonuses, and various loyalty benefits, in turn allowing you to diversify your investment approach and scale your investment amount. This will ultimately help you reach various other financial goals in your life and create long-term financial security.

Work towards your long-term financial goals

For better or worse, life tends to revolve around different financial milestones. These milestones include paying off your college debt, buying a house and a car, putting your kids through college, and saving up for a healthy, joyful retirement. Aside from these common goals, there are numerous other financial milestones that require careful planning and preparation in order to one day become a reality. Obtaining a life insurance policy boasting an adequate coverage and sum can help you reach various financial goals throughout your life, as you can choose between various insurance plans and create your optimal mix of coverage and payments. By creating your life insurance plan, you are effectively securing finances for the future, all for the sake of a solvent tomorrow.

Using permanent life tax benefits

For select countries around the world, including the United States, one of the major benefits of a permanent life insurance plan is that the accrued financial assets are only taxed when the policyholder withdraws the money from the account. While the same benefit can be found in other savings and retirement plans, permanent life insurance allows you to invest any amount of money you want. This is especially beneficial to individuals who want to invest beyond the maximum amount allowed by traditional retirement methods. What’s more, the policyholder has the right to transfer the death benefit of the policy to their beneficiaries tax-free. This is a great financial perk that does not come with any other form of savings or retirement account.   While it might not seem like a principal consideration at first, life insurance has an important role to play in your long-term financial plan. In fact, choosing the right type of policy and coverage amount can have a profound impact on your financial goals, and the methods by which you can achieve them. Let these tips help you build a sound financial plan for a solvent, and affluent future.

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