Wednesday, May 9, 2012

Permanent Insurance: The Living Benefits

Permanent life insurance provides you with a valuable death benefit at a time of loss and need. But if you take a closer look, you'll see that it has the potential to offer so much more.

The Facts of Life
The death benefit provided by life insurance is a key component of a sound financial plan. The right amount of life insurance coverage can help you protect your family's current life style — without it, the loss of income could mean that a major change in lifestyle or standard of living may be required to meet expenses.
Beyond the Death Benefit
The main reason for buying life insurance is to make sure that your loved ones are financially secure in the event of your death, but permanent life insurance also can provide you with living benefits. Living benefits can be in the form of policy cash value, optional riders and policy features and can provide resources for helping with:                 
Supplementing retirement income

Preparing for chronic illness

Disability income

Business planning

College tuition

Charitable planning

Estate planning

Insurance for Your Lifetime
The death benefit provided by life insurance is critical for those who depend on you financially. But understanding how you and your family or business can gain from the living benefits of a policy is also important.
Since the cash value of a permanent life insurance policy grows income tax deferred, it can be used to provide an income stream during retirement or to help meet other long-term financial goals, such as funding college education for a child or grandchild. The guaranteed accessibility to the cash value makes permanent life insurance one of the most valuable assets people can own.

Here are some important ways you can use these living benefits:

Dealing with the Unexpected
If you were to become disabled, would your company still put money in your 401(k)? With cash value to fall back on, you could supplement disability income and cover necessary expenses if you were ever faced with a life-changing accident or illness.
Educating Children
College tuition and living expenses may be paid with permanent life insurance cash value, and currently most applications for student financial aid don’t consider this asset when determining eligibility for scholarships, grants or loans. Parents also purchase life insurance as part of their plan to protect their ability to pay for college.
Generating Business Cash
When an opportunity arises or your business requires immediate funds, you can access life insurance cash value quickly without credit applications or lengthy approval processes. One company in California expanded their satellite parts manufacturing business using cash value as collateral to secure favorable bank loan terms and local government incentives. Another business owner in Tennessee found peace of mind in using cash value to meet payroll expenses when his small real estate management business was hit by the area’s economic woes. This makes permanent life insurance an advantageous funding vehicle for Buy-Sell Agreements and Executive Deferred Compensation Arrangements.

Provide Funds for Emergencies
Whether it is an unexpected home repair or a family crisis, you may at times need additional dollars to address life’s challenges. Once your emergency fund is depleted, cash value can be tapped to pay for unexpected events, like a new roof or a family member’s medical expenses.
Planning for Business Succession
When your client’s business life solutions include life insurance for their business succession needs such as funding a buy-sell agreement, a key person policy, an executive bonus arrangement with life, or a non-qualified deferred compensation arrangement, a permanent life solution is often a way for that business owner to more fully protect their business. While a term policy can protect a business against the unexpected death of a business owner or key person, a business is also vulnerable to the retirement, disability or withdrawal of that key employee or owner.
By using a permanent policy to fund these business life solutions, the business owner has a ready source of funds that it can access on a tax advantaged basis to meet their needs in the event of disability, retirement or withdrawal, as well as any general need of the business.

Supplement Retirement Income
The cash value of permanent life insurance can be a stable asset in your retirement portfolio that is guaranteed to grow, consistently and tax-deferred, over many years. There are multiple options for using your accumulated cash value to suit your individual needs at retirement and beyond.
With protection and accumulation, permanent life insurance helps you build a foundation for life, a stable portion of your financial security plan that helps manage risk and grow assets.

Term vs. Permanent Insurance Features
Term Life
Permanent Life
Lower premium
Higher premium
Limited time
Cash Value
Builds tax-deferred
Paid in cash, applied to premium to buy additional coverage or accumulated with interest
Available on cash value for any purpose
Death benefits
Death and living benefits

This material was prepared for educational purposes only and does not constitute tax, legal or accounting advice. Neither Farmers Insurance nor any of its agents,
employees or registered representatives are authorized to provide tax or legal advice. This material was not written for, or intended for, and cannot be used by any
taxpayer for, the purpose of avoiding any IRS penalty. Any discussion of taxes herein or related to this document is for general information purposes only and does not
purport to be complete or cover every situation. Tax laws are subject to interpretation and legislative change. The actual tax results and the appropriateness of any product
or arrangement for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax
advisers regarding your particular set of facts and circumstances.
MP.01 10/11


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