You probably think of life insurance as something that is important if you have family who are dependent on your income. While this is certainly the case, there are several other sound financial reasons for purchasing life insurance even if you are single and do not have dependents. Some types of life insurance can be a smart investment. You can borrow against some policies, and you might be able to sell it after it has acquired some value if you no longer need it. In addition, it can be used to pay off any debt that might otherwise come out of your estate, including funeral costs.
Life Insurance as Investment
One reason many people do not realize that life insurance can be an investment is that term insurance is very popular. This type of policy can be great for protecting your family when you only need coverage for a certain number of years, such as 10 or 20. However, it can also be an investment strategy. There are a number of different options depending on how hands-on you want to be in managing your money. This can be particularly useful as a retirement strategy if you have already maxed out your contributions to regular retirement accounts. As an investment, the growth from your life insurance is generally tax-free.
Collateral for Borrowing
People often think of their homes as something you can borrow against and do not realize that this may be possible with life insurance as well. If you need money for your child’s education or a down payment on a home, you may be able to borrow tax-free against the cash value of your policy.
Selling Your Life Insurance
You may be able to sell your permanent policy if you no longer need it. In general, this happens when you are older and the policy has accumulated some value. One possibility is a life settlement. A viatical settlement is generally for people who are chronically or terminally ill. This can provide money for end-of-life care and other costs. You can review a guide to find out more about eligibility for a viatical settlement and everything else that you need to know about this type of arrangement.
Paying off Debt
Debt generally does not pass to other family members after a person’s death. However, what can happen is that existing debt can consume enough of a person’s estate that there is far less left of it to pass on to beneficiaries. There could also be issues if you share the debt with your spouse or another individual. Look into consolidating debt to save money if applicable now, and if you have a life insurance policy, the payout can be used to be pay off any creditors, and your assets can be distributed to your beneficiaries in the way that you wish later.
Paying Funeral Expenses
Funeral expenses can be costly even if your wishes are for a comparatively low-key service. This can be a financial burden for your loved ones at a difficult time, and a life insurance policy can help ensure that there is enough to cover this.