Until Debt Do We Part

An Uncommon Solution to Debt Protection

It’s no secret that financial problems can wreak havoc on a couple’s relationship. In fact, two out of three sources state that “Money” is among the top two reasons for divorce.

Fortunately, there’s a time-tested debt protection solution, and it’s called Life Insurance.

Hold your horses! If you leave now, you might miss something important.

If you’re still with me, then allow me to give you a brief history lesson on Life Insurance. The earliest known form of life insurance was used by the Romans around 100 BC. Today, it’s used by professional sports players, television celebrities, and your friends, family, and coworkers.

There are three core types of life insurance:

1. Term Life Insurance — Designed to be temporary and does not accumulate cash value.
2. Whole Life Insurance — Designed to be permanent and can accumulate cash value.
3. Universal Life Insurance — Customizable, can be temporary or permanent and can accumulate cash value.

Let’s go over the cool things that life insurance can do:

1. Pay for your kid’s college tuition and fees.
2. Pay off your credit card debt.
3. Pay for your mortgage.
4. Pay for a vehicle, your vacation, and that sweet 70" television you’ve been eyeballing since last Christmas.
5. Life insurance can also be used to supplement your retirement income. This is especially important because Social Security is estimated to provide only 40% of our lost income when we retire, and according to experts, Social Security alone is not enough.

The good news is that sometimes nobody has to die, or get sick to use the money from life insurance.

This benefit can be found in Whole Life and Universal Life insurance products and it’s called, “cash value”. It simply refers to the money accumulated in a life insurance policy that’s available for withdrawal.

By the way, did you know that Walt Disney used the cash value from his life insurance policy to fund Disney World?

Here are some other examples of life insurance with cash value:

1. A few years ago, I helped close friends setup an IUL (Indexed Universal Life Insurance) policy for their 9-year-old daughter. We designed it so her daughter will have an estimated $2 million dollars available for retirement distributions from age 66 to 86, or her daughter will be able to “surrender” her life insurance policy at age 66 for $1 million.
2. Last year, I helped my younger sister setup an IUL for herself. Instead of designing it for retirement, we focused on the death benefit her husband and son would receive if they outlive her. However, her policy will also have enough cash value in five years, to pay for vacations and other things.
3. This year, my wife and I started IUL’s for our kids. Although I designed their policies to supplement their retirement, there should be enough cash value in ten years to help them with a down payment for a house or buy a car.

What about taxes?

First, I am not a “tax expert”, so any information I provide about taxes should be taken as an opinion and not a fact.

The cash value you use from a life insurance policy might not be subject to income tax.

Here’s a basic, hypothetical example if you’re interested:

You’re 65 years old and ready to retire. You paid your IUL’s premium of $1,000 per year for 20 years, a total of $20,000.

Your policy gained $40,000 from the insurance company‘s reinvestment of your premium. Now, your policy has a cash value of $60,000 dollars.

You decide to buy a $32,000 car, so you take $32,000 from your IUL.

When you file taxes at the end of the year, you’ll pay income tax on the $12,000 because that money represents the growth and hasn’t been taxed.

However, you won’t pay income tax on first $20,000.00 because that money presents the premiums you paid from your checking account (which we’ll assume was already taxed).

Life insurance can be an affordable, flexible, and cost-effective solution to debt protection. Not only can it offer a tax-free lump sum to your beneficiaries when you pass away, but the right life insurance product can also provide you with cash that you can use while you’re alive.

Before selecting the right product, it’s important to consult with at least one licensed insurance broker before you choose any life insurance product. Brokers are independent agents who can do all of the shopping for you, but not all brokers are contracted with the same insurance companies, and there are no insurance brokers contracted with all of the insurance companies.

When you’ve found a broker you trust, tell them you want quotes and illustrations only from insurance companies that are rated “A” and up by A.M. Best. That rating is based on an insurance company’s financial strength.

Good luck!