Have you reviewed your life insurance policy recently?
Not too long ago, I had a client that sent me copies of both spouses’ life insurance policies along with their tax documents. Even though the life insurance documents were not needed to prepare their tax return I couldn’t resist looking them over. Not only do I like to save my clients on their taxes, but I love to help clients save anywhere financially that I can. After looking over their policy, here are the two negative things that I found about their policies
- Both spouses had a “Cash Value” life insurance policy.
- Combined they were paying about $200/month more than equivalent term life policies.
I cringed when I saw both of the above facts. The sad thing is that there are so many people out there in the same boat. The “Cash Value” plans are sold and pushed as an investment and life insurance all in one. After talking to the clients about the matter, I discussed the following things with them:
- Get rid of the “Cash Value” life insurance policy.***
- Purchase term life insurance on both.
- Take the cash value out.
- Use the cash value and extra savings each month to knock out debt.
Most people ask about the tax consequences of taking the cash value out of their policy. The only taxable income will be any gains the account has made. In this client’s case they were told none would be taxable. Typically this is the case or very little gain in comparison to the premiums put in. Now isn’t that interesting, since the biggest selling point of “Cash Value” policies is that you pay the higher premiums for it to be a “great investment”. Also, when you die, the only thing that your beneficiaries will receive is the face value of the insurance policy and the “Cash Value” is kept by the insurance company.
Please review your life insurance policies from time to time. Make sure that you have the right plans for you and your family. If you have a “Cash Value” policy, you should definitely consider getting a term policy and using the savings for debt and investing. Even though we don’t sell insurance, we would be happy to answer any questions that you might have. Feel free to contact us.
***Make sure you have an approved term policy in place before terminating your “Cash Value” policy.