Life Insurance Living Benefits

 Life insurance has evolved over the years, from a short term vehicle to protect banks and loan companies, to an investment vehicle tied to the stock market, life insurance products and portfolios cover the bases. But most people believe life insurance is for final expenses, actually death insurance, and we want to educate you on ways many of the nation's richest have used these products to increase their wealth in a safe and secure way.

Term insurance was developed at a time when  was growing and housing starts were backed by savings and loan associations and banks. Companies needed to be sure loans would be paid upon the death of the homeowner, so decreasing term "industrial" insurance was born. As mortgage balances decreased, so did the death benefit of the insurance. Often, agents went door-to-door each week collecting small premiums to cover possible loss.

As people began to realize income replacement was important to consider, a policy that covered someone's "whole life," was introduced, thereby providing money for other expenses at someone's death, rather than just covering a mortgage. The premiums were a little higher, so insurance companies made these policies either participating or non-participating to entice consumers. An insured could participate in the insurance company's growth via dividends, or through interest applied to a cash value within the policy that was guaranteed.

Interest rates have a history of being cyclical, just like the stock market, so people asked for a product that was more universal in nature so they could participate in the stock market and still have a reasonable death benefit. Universal life was then born.

All of these policies are life insurance products, and life insurance is treated differently from all other investments for tax purposes because it is tied to the life and death of the individual insured.

Death benefits are always tax free to the beneficiary. Growth within a policy is not taxable as income or interest as it is in a CD or savings account. Loans from the policy are not taxed as income and can be repaid or not repaid, affecting only the death benefit.

There are limits to the amounts that be invested in a policy so that it maintains its status as insurance, but there are so many ways to use insurance to become your own bank, offset taxes in business, provide cost recovery if you're a business owner or professional, and have access to funds for retirement or college or just plain life.

Additionally, some companies now offer living benefits. These are riders attached to the policy at no cost so you can accelerate your death benefit to use for chronic illness, emergency care or catastrophic illness.