Nobody gets excited to talk about it, but there are things you should know about life insurance. John shares important facts on this often befuddling topic.
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The Bass Lines:
Why Is Life Insurance Cringeworthy?
- [00:35] – All of us can probably picture the stereotypical life insurance salesman. If not, here’s a reminder from the classic Bill Murray movie Groundhog Day.
- The topic makes us nervous because so many of us have had such sales-related experiences with it. It’s also typically related to the topic of death, and not many folks are comfortable talking about death. Many of us think of life insurance as something you purchase to protect you’re family while you’re still working. Once your kids are off on their own, you probably no longer think it’s necessary. However, life insurance is a bit more complex in reality, and it can play a valuable role as one part of your overall retirement plan.
Life Insurance Can Benefit You In Life.
- [6:18] – If you have a high income, you can use it as a way of investing for future income. We typically don’t recommend that, but there are circumstances where it’s appropriate. Let’s say you’re making half a million dollars a year. You can max out your 401(k), but other than that, all of your savings are in after-tax accounts. It’d be nice to be able to invest tax-free down the road, but you make too much to contribute to a Roth IRA. Therefore, you’re left with two options; municipal bonds and life insurance. You can overfund a life insurance policy and then borrow back from the cash value of that policy to give yourself future income. Some policies have growth potential within the cash value of the policy. Again, for the overwhelming majority of the population, this doesn’t make sense. However, in select cases, it can be an option.
The Living Benefit.
- [8:00]– Unfortunately, this one isn’t particularly fun to discuss either as it revolves around nursing homes and other assisted living facilities. Here’s how it works: Let’s say you have a $250,000 life insurance policy. When you die, your spouse would quite simply collect $250,000. However, let’s say you enter a nursing home. If your policy has a living benefit, you can use that $250,000 to pay for your care. You won’t get it in a lump sum, but it could last you for a few years and supplement the cost of long-term care.
Life insurance is an often uncomfortable topic, but it can serve as a valuable piece in your overall retirement plan. When buying life insurance, work with a fiduciary advisor who'll look out for your best interest. - Mr. Stillman's OpusTweet This