Life Insurance as a Financial Asset: More Than Just a Death Benefit
September marks Life Insurance Awareness Month, a timely opportunity to highlight values of life insurance beyond its traditional role. Many people think of life insurance solely to provide for loved ones after death, but that’s only half of it. Permanent policies can serve as powerful financial assets while you're still living. These policies offer benefits like cash value accumulation, tax advantages, and financial flexibility, making them a versatile component of a long-term financial plan.
Life insurance generally comes in four main forms, each serving different financial needs and goals:
Term Life Insurance: Provides coverage for a specific period (such as 10, 20, or 30 years). It’s typically more affordable but does not build cash value. Its primary purpose is to offer a death benefit if the insured passes away during the term.
Permanent Life Insurance: Offers lifelong coverage and includes a cash value component that grows over time. This accumulated value functions like a savings account and can be accessed while the insured is still living, offering both protection and financial flexibility.
Whole Life Insurance: Is a traditional permanent policy with fixed premiums for life (or until a specified paid-up age) and a guaranteed death benefit. With whole life insurance, cash value grows at a rate set by the insurer and is guaranteed (subject to the insurer’s solvency). This form of life insurance may also pay dividends that can be taken as cash, be used to reduce premiums, or left to accumulate. Whole life insurance is suitable for individuals who want a conservative, predictable policy with fixed premiums and guaranteed growth.
Universal Life Insurance: Universal life insurance is a permanent policy with flexible premiums, interest-credited cash value, and flexible death benefit options. There are two variations of universal life insurance: indexed universal life and variable universal life. Indexed universal life earns interest based on an index such as the S&P 500. With variable universal life insurance, the insurance company sets a fixed interest rate and allows you to invest cash value in sub-accounts.
When viewed as a financial asset, permanent life insurance offers unique advantages. Policyholders can access the policy’s cash value through loans or withdrawals, providing liquidity when it’s needed, such as:
A job loss
A medical emergency
A major home repair
This makes it an effective emergency fund, helping cover unexpected expenses without disrupting other investments. Additionally, the cash value grows tax-deferred, and policy loans are often tax-free. Permanent life insurance can also support long-term goals like:
Supplementing college savings
Generating additional retirement income
Permanent life insurance offers portfolio stability and diversification, since its performance isn’t directly linked to market fluctuations. This helps provide financial growth.
Permanent life insurance offers more than just protection, it serves as a valuable financial asset during your lifetime. With benefits like cash value growth, liquidity, and support for long-term goals, it can be a strategic component of a well-rounded financial plan.
If you haven’t reviewed your life insurance strategy recently, now is a great time to do so. Speak with a licensed financial professional to see how life insurance can help strengthen your financial future.
This article is for information purposes only and should not be construed as an investment recommendation. Past performance is no guarantee of future performance. Diversification does not guarantee a profit or protect against loss in declining markets. Investing involves risk, including the potential loss of principal. West Michigan Advisors is an investment adviser registered with the U.S. Securities and Exchange Commission. Securities offered through Level Four Financial, LLC, member FINRA/SIPC. The material has been gathered from sources believed to be reliable, however West Michigan Advisors cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. To determine which investments or planning strategies may be appropriate for you, consult your financial advisor or other industry professional prior to investing or implementing a planning strategy. This article is not intended to provide investment, tax or legal advice, and nothing contained in these materials should be taken as such. Investment Advisory services are offered through West Michigan Advisors. Advisory services are only offered where West Michigan Advisors and its representatives are properly licensed or exempt from licensure. No advice may be rendered unless a client agreement is in place. Securities offered through Level Four Financial, LLC, a registered broker dealer and Member of FINRA/SIPC.