A life insurance policy can do a lot more than protect you and your family–it can also work as a financial management tool.
Life insurance isn’t just about preparing for the worst—it’s also about planning wisely for the future. Many people think of their life policy only as a safety net for their loved ones, but certain types of plans can also help you build long-term financial security. Whether you’re looking to protect your family, create a legacy, or explore a low-risk way to grow your money, life insurance offers more potential than many realize.
Why Life Insurance Matters
If others depend on your income—like children, a spouse, or aging parents—life insurance can help ensure they’re financially secure even if something happens to you. While savings accounts and emergency funds are great tools for protecting your wealth, life insurance can go a step further. Certain permanent life policies allow you to build cash value over time, giving you a way to grow your money while still providing critical coverage. Think of it like the lovechild of an insurance plan and an interest-accruing savings account!
Death Benefit and Living Benefits
In its most basic form, the purpose of a life policy is to provide a large sum of money–otherwise known as a death benefit–to your named beneficiaries. This payout can help cover funeral costs, pay off outstanding debts, or simply help your loved ones maintain their lifestyle after you pass away.
However, going beyond the basics here, some policies offer living benefits as well. For instance, permanent life policies (such as whole or universal life) accumulate cash value over time that you may be able to borrow against or withdraw while you’re still alive. This can be especially helpful if someone in your family experiences a health emergency or needs unplanned surgery or when other unexpected expenses arise. Just keep in mind that borrowing from your policy may reduce the death benefit or result in fees.
Whole Life vs. Universal Life Insurance
Two of the most common types of permanent life insurance are whole life and universal life. Both offer lifelong coverage and the ability to build cash value over time, but there are key differences:
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Whole Life: Offers fixed premiums and a guaranteed death benefit. The cash value grows at a predictable rate.
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Universal Life: Offers more flexibility. You can adjust your premium payments and death benefit (within limits), and the cash value is tied to interest rates or market indexes, depending on the policy.
Choosing between the two depends on your long-term goals, budget, and risk tolerance.
Flexible Payment Options
Some policies allow you to tailor how you pay:
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Single Premium: You make one large upfront payment and the policy is fully funded. This is often used for legacy planning or tax-efficient wealth transfer.
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Lifetime or Limited Pay: You make regular payments over time—monthly or annually—which may better fit into your budget while still building long-term value.
A licensed agent can help you understand which structure makes the most sense for your financial goals.
A Tax-Advantaged Tool
One of life insurance’s biggest perks is its favorable tax treatment. In most cases, death benefits are paid out tax-free to your beneficiaries. Additionally, the growth of the cash value within permanent policies is tax-deferred, meaning you won’t pay taxes on that growth as long as the money stays in the policy. This makes life insurance an appealing option for those looking to preserve wealth across generations.
Final Thoughts: More Than Just Protection
Life insurance is more than a safety net—it’s a tool for building wealth, planning for the future, and creating peace of mind. Whether you’re just getting started or reviewing an existing policy, it’s worth talking to a licensed professional who can help you understand your options.
Life Insurance Questions?
We hope that this information on how to use life insurance as a financial tool has been useful to you.
If you’d like to learn how we can help you plan your retirement, call Empower Brokerage at (888) 539-1633 to speak to one of our Life and Annuity experts or leave a comment down below.
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