The key benefits of life insurance lie in the ultimate objective of achieving financial security for oneself and one’s dependents, even in the face of debilitating illnesses, accidents and death of the chief income earner in a family. However, many insurance holders and their dependents fail to realize that there is more to life insurance coverage than management of contingencies.
Taking Out a Loan Against the Insurance Policy
Keep in mind that the value of an insurance policy appreciates over time and it is possible to use the life insurance policy as collateral for a short-term loan in times of financial emergencies. The advantage of such an arrangement is that the contribution of premiums goes on building savings as planned, while the repayment of the loan is comfortable since the funds are not taxable. However, it is important to clear all outstanding loans against an insurance policy expediently to avoid paying high interest rates on the loan.
Selling the Insurance Policy
Occasionally, a life insurance policy may be of less significance to you; for example, in a situation where your current or new employer motivates you by providing an insurance policy that is similar or even better than an outstanding policy that you had earlier acquired. Take note that you are free to place bids on your current insurance policy if you find it of less importance and take advantage of the current voucher at hand. This relieves you of the current burden of paying premiums to the policy since the third party to who you sell the policy to continue paying the premiums until the insurance period expires or until the policyholder passes on in the case of a life insurance. The buyer collects the policy payout upon the maturity of the insurance coverage. Note that life settlement transactions are shrouded in controversy and have tax implications but they remain a lucrative option for policyholders wishing to make some money quickly or for those who are unable to continue paying premiums.
Exchanging a Policy for Another
As an alternative to selling your life insurance policies, you are also eligible to do an exchange of the current insurance coverage to a more relevant insurance policy that best fits your needs. This is allowed under the 1035 exchange option of the tax code governing insurance transactions.
Funds Withdrawal Against the Policy Cash Value
Once the cash value of a life insurance policy has accumulated to a modest amount, you have the option of withdrawing funds against the cash value of the insurance policy. However, you should always note that once the insurance policy matures, the withdrawn amount will be subtracted from the eventual payout of the insurance policy.
Insurance coverage comes with tax relief for policyholders, however, very few are aware of this. For instance, the heirs of a policyholder would also receive their inheritance free of any taxation if the life insurance policy were a single-premium whole life.
These options are beneficial in helping you and your dependents to get through prevailing hard economic times while still saving for the future. As everyone's needs differ, it is best to consult your agent to help assess your needs and find the insurance policy that is right for you.
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