Facing Life’s Difficulties with Life Insurance

What many people don’t realize is that survivors face several types of financial difficulties after a salary earner’s death, besides the loss of income. Here are a few life situations that life insurance can help your heirs handle more easily. Debts: Your debts don’t die after you pass away — they become your heirs’ responsibility. Debts can include auto loans, mortgages and other liabilities.

Your survivors don’t have to pay off the mortgage immediately, but instead can take over the mortgage payments. However, a lender has the option of forcing survivors to pay off a home-equity loan immediately. If your survivors can’t afford to do that, they might have to sell the house. The same scenario holds for a vehicle, although lenders usually allow heirs to continue making car payments.

Credit card loans don’t have to be paid un- less the survivor is a spouse or a joint account holder. Student loans don’t need to be paid off unless a survivor co-signed for the loan. Federal student loans are discharged upon the borrower’s death. Need for Immediate Cash/Liquidity: Your estate might have assets, but they might not be readily accessible. Your heirs will probably need cash to pay administrative costs, appraisal fees, attorney fees and estate taxes.

Life insurance can help. Unlike the proceeds of an estate, you can receive the benefit from a life insurance policy almost immediately. Beneficiaries do not pay taxes on the death benefit proceeds. Life insurance also can provide liquidity when the policyholder is alive. Liquidity is the cash value of a permanent life insurance policy that accumulates tax free. A policyholder can access the cash value on a tax free basis. The amount the policyholder can withdraw from a policy depends on how it is structured and how long the policyholder has been paying on the life insurance.

Keep in mind there might be penalties for withdrawing cash value. In addition, cash value withdrawals can decrease the policy’s death benefit available to beneficiaries if the policyholder doesn’t pay the loan amount back before death. Need for Substantial Amounts of Cash: Life is expensive and it can be difficult to save for the future.
Many people also are living longer and are using more of their money in retirement. You may have expenses you thought you’d be able to pay from your salary or be able to pay from retirement savings, such as a child’s college costs or medical expenses. If you buy permanent or whole life insurance, you can tap into the accumulated cash value to pay these expenses.

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