There are specific life insurance policies that can become a financial asset to you. Think of it like an investment account, such as an IRA or mutual fund.

Permanent Life Insurance

Permanent life insurance policies allow you to invest in conservative investments, like mutual funds or ETF’s. You can customize your investments, allowing your policy to align with your goals and risk tolerance. There are two types of permanent life insurance.

Whole Life Insurance

Whole life insurance is the most common type. This policy allows you to accumulate cash value. When you pay for the policy each month, a portion of it is placed onto a cash value account. This is basically a savings account component with the life insurance policy.  It is noteworthy that the premiums on these policies typically won’t increase over the life of the policy.

Universal Life Insurance

Universal life insurance is the second type that allows policymakers to grow an asset over time. What sets this one apart is that the premiums are not set and can change at any point. There is something called “variable universal life insurance” which allows investors to have more freedom over their investments. This could lead to higher returns in the long run.

How To Use Your Policy

To use your life insurance policy as an asset you must grow your investments and develop the power to borrow against what you have saved. These earnings are also growing on a tax-deferred basis.

• Use your policy as collateral for a loan: This will help you get approved for a loan or potentially get a better rate on the loan. This is a form of showing lenders that you are trustworthy as a borrower.
• Take a loan from your policy: You can borrow against the cash value of your permanent life insurance policy. When you do take a loan from your policy and it is not paid off by the time of your death, then that benefit is subtracted from what your beneficiaries would have received.
• Withdraw funds: You can simply take money from your policy that is cash. This is also money that will not be paid to your beneficiaries later. If your withdrawal is a large amount, then you may pay taxes from dipping into your investments.
• Option for accelerated benefits: This option is available in a time of severe medical emergencies.
• Surrender the policy: You can cancel your insurance policy and get back the cash value that you put in. Keep in mind to read the fine print, because often time there are quite high fees when doing this. Similarly, if you to withdraw from a retirement account early.

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Purchasing insurance in your single, young adult years can seem purposeless. Consider another perspective. Life insurance can be viewed as a strategy and a wise decision in your young professional years. Common reasons to purchase life insurance include:

• Having dependents who rely on you.
• A large amount of debt.
• Lock in lower premiums.

Lack of Life Insurance in Younger Generations

Only 34% of Generation Z report having life insurance. Over half of millennials have no life insurance at all according to Life Insurance Marketing and Research Association. Why do so many young people not have life insurance? The most common response is that it is simply too expensive or does not make sense if there are no dependents. The cost for life insurance is on average $300 annually, which is roughly $25 a month. This is not overly expensive when considering other subscription services or even gym memberships.

Why Get Life Insurance Now?

Choosing to purchase life insurance as a young professional does have its benefits. The younger and healthier you are, the lower premiums you can secure. These premiums stay low through the remainder of your life.

Purchasing life insurance will also protect the people you do care about if you were to unexpectedly pass. Your family members may receive some benefits for final costs, like covering the cost of the funeral. If you do have dependents, then it also ensures that they will be taken care of if they can’t pay the mortgage on their own or to fund your kid’s education.

Having a life insurance policy can also erase debt from your becoming your dependents burden to carry. You may also be able to grow a cash value in your policy that can be passed down or be accessed in your lifetime.

Employer Provided vs. Individual

Employer provided life insurance is great until you lose your job or decide to leave. Considering an individual policy could be worth it, because you do not have to worry about interim periods where you do not have coverage.

In conclusion, purchasing life insurance as a 20–30-year-old could be beneficial. You can lock in lower premiums and take a burden from your future self.

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Life insurance serves as a monetary shield for your family in the event of your untimely demise, ensuring they maintain their lifestyle without financial strain. This becomes particularly critical if you are the primary breadwinner, as the benefits from your life insurance policy replace your income, covering daily living expenses, mortgage payments, and even future needs like your children’s education.

Moreover, life insurance can be an effective tool for estate planning. A correctly structured policy can provide a lump sum on death that may be used to pay any inheritance tax due, thus preserving the value of your estate for your heirs.

Finally, certain types of life insurance can also function as a long-term savings plan. Policies like whole life or universal life not only provide a death benefit but also accumulate cash value over time that you can borrow against or receive if the policy is surrendered.

In summary, life insurance should not be an afterthought in your financial planning. It provides security, peace of mind, and can even contribute to your long-term wealth creation strategy. It’s an integral piece of your financial puzzle, ensuring that your loved ones are taken care of, even when you’re not around. So, don’t wait until it’s too late. Start considering life insurance as a vital part of your financial plan today. Your family will thank you for it.

About Matt

Matt Ward is a financial advisor and the president of New Century Investments, an independent investment advisory firm serving business owners, pre-retirees, and retirees in the Dallas-Fort Worth area and beyond. Matt is passionate about integrating investing, planning, and tax management into a holistic approach. Matt’s breadth of knowledge and experience in both taxes and investment management sets him apart, giving him the ability to design, advise on, and manage business strategies, tax efficiency, and retirement planning. He is known for his care and attention to detail and works hard to develop personal relationships with each of his clients so they can benefit from his customized service and guidance. He loves walking with his clients through their financial journey, supporting them and celebrating with them as they reach their goals. 

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The post The Importance of Life Insurance in Your Financial Plan appeared first on New Century Investments.