Let’s face it—most of us don’t want to think about the possibility of dying, and what might happen after we die. But if you have a partner and a family, then it’s important to ensure that they’ll be taken care of if the worst does happen. Life insurance is the best way of doing that, particularly if your partner is staying at home to take care of the children —it helps to make sure that your family won’t suffer financially from the loss of your income if you die or are involved in an accident that causes permanent disability. And even if you’re a two-income household, life insurance will help ensure that your family remains financially stable. That’s the standard benefit of life insurance, but there are others.
Dividends
Depending on the type of insurance company you choose, you can benefit from dividends while you are the owner of a policy with that company. These companies are known as mutual insurance companies, and if you have a policy with a mutual company, you are eligible to receive dividends based on the type of policy you own, and the amount of the company’s financial surplus each year. However, you are not guaranteed to receive dividends every year, nor is there a guarantee on the amount you’ll receive.
Depending on the company you have a variety of options for using dividends. You can put the money towards paying future premiums, use it to increase the value of your policy, leave it on deposit to gather interest, or you can simply take the money as cash to spend as you wish. However, note that while dividends themselves are not taxable unless the total dividends you receive are more than the total you’ve paid in premiums, the interest you earn on dividends if you leave them on deposit is taxable.Borrowing from your Life Insurance
If your life insurance policy has cash value, you may be able to borrow against it. One of the biggest advantages of borrowing against a policy rather than simply getting a loan is that you’ll pay much lower interest.
However, there’s a downside to this that you should be aware of. If you borrow against your policy and don’t pay it back, your beneficiaries receive less money if they make a claim—so borrowing from your life insurance can be counter-productive. Borrowing against the cash value of your policy should only be done if you have a true financial emergency—and the money should be paid back into your policy as soon as possible to ensure that your beneficiaries receive the full value of the policy.
Note that you must have permanent life insurance, rather than term life insurance, to be able to borrow against it. Additionally, there is a “waiting period” between buying the policy and being eligible for borrowing against it. Even more important, if your outstanding loan balance plus interest exceeds the cash value of your policy, the policy is terminated and your coverage ends—so it’s best to be cautious about borrowing.
Dividends
Depending on the type of insurance company you choose, you can benefit from dividends while you are the owner of a policy with that company. These companies are known as mutual insurance companies, and if you have a policy with a mutual company, you are eligible to receive dividends based on the type of policy you own, and the amount of the company’s financial surplus each year. However, you are not guaranteed to receive dividends every year, nor is there a guarantee on the amount you’ll receive.
Depending on the company you have a variety of options for using dividends. You can put the money towards paying future premiums, use it to increase the value of your policy, leave it on deposit to gather interest, or you can simply take the money as cash to spend as you wish. However, note that while dividends themselves are not taxable unless the total dividends you receive are more than the total you’ve paid in premiums, the interest you earn on dividends if you leave them on deposit is taxable.Borrowing from your Life Insurance
If your life insurance policy has cash value, you may be able to borrow against it. One of the biggest advantages of borrowing against a policy rather than simply getting a loan is that you’ll pay much lower interest.
However, there’s a downside to this that you should be aware of. If you borrow against your policy and don’t pay it back, your beneficiaries receive less money if they make a claim—so borrowing from your life insurance can be counter-productive. Borrowing against the cash value of your policy should only be done if you have a true financial emergency—and the money should be paid back into your policy as soon as possible to ensure that your beneficiaries receive the full value of the policy.
Note that you must have permanent life insurance, rather than term life insurance, to be able to borrow against it. Additionally, there is a “waiting period” between buying the policy and being eligible for borrowing against it. Even more important, if your outstanding loan balance plus interest exceeds the cash value of your policy, the policy is terminated and your coverage ends—so it’s best to be cautious about borrowing.
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