I was reading a few chapters on life insurance policy while doing my PFP study and I thought it would be a good idea to present some ways of making money from your life insurance policy since most people see this expense as a total waste of money.
The purpose of having one’s life insured is to financially protect his/her family member from his/her financial loss. For example, if you make 75K and your spouse makes 25k, you should technically be insured 3 times more than her considering how much you bring on the table.
On the other side, several people are over insured or should not even have a life insurance policy. Here are some ways that you can benefit from the money hidden within your insurance.
Sell your life insurance endowment.
There is a market for Traded Endowment Policy (TEP) where you can sell your policy for a higher price than it’s actually endowment value. I leave you with this though for now since I wrote more about endowment last week.
Borrow on your cash surrender value
Universal and Whole life insurance police has cash surrender value (CSV). The CSV basically is accumulating within your policy and is tax sheltered. Those kinds of product are recommended for wealthy individuals who already contributed to their maximum RRSP contribution.
While cashing the money within your life insurance policy will resign the contract, borrowing money from it won’t affect the policy at all. If you die before you reimburse your loan, the amount of the insurance will pay off the loan than the difference will be given to the beneficiary.
Stop paying your premiums
Sounds like a weird advice from a financial planner, huh? Well the thing is that you may want to reassess your life insurance need with an independent advisor in order to calculate if you really need that much insurance. You may be able to drop your coverage, increase your cash flow and start a systematic investment plan.
Change your coverage
When you reassess your needs in term of life insurance, you might realise that you simply don’t have the right product according to your situation. I know a lot of people that have universal life policy while their need is to be insured for the next 20 years .If you have a good financial plan, you should not need insurance past that point. Then again, it’s a case by case analysis and wealthy people may use whole life insurances as a tax shelter or for estate planning.
In the end, it’s all about assessing your need in order to free up some cash flow.
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