Understanding Life Insurance: Benefits and Strategic Approaches

Essentials of Life Insurance

Life insurance is a fundamental component of financial planning, providing both security and peace of mind. When a policyholder purchases life insurance, they ensure that their beneficiaries are financially protected in the event of their passing. Life insurance can offer more than just a death benefit; it can also include living benefits, which can be accessed under certain conditions during the policyholder’s lifetime, such as in cases of chronic or terminal illness.

How Life Insurance Payouts Work

The payout process of life insurance involves beneficiaries filing a claim upon the death of the insured, and, once approved, they receive the death benefit. This benefit is crucial as it helps cover funeral costs, outstanding debts, and ongoing living expenses, providing financial relief during a challenging time.

Overfunded Whole Life Insurance Strategy

A unique strategy often implemented at White Knight Capital is overfunded whole life insurance. This approach involves paying extra into a life insurance policy, above the normal premiums, which accelerates the growth of the policy’s cash value. It is important to manage this carefully to avoid the policy becoming a Modified Endowment Contract (MEC), which could have unfavorable tax implications.

Benefits of Overfunding

Overfunding life insurance can be a powerful tool in financial planning. It not only provides a death benefit but also builds a non-market correlated cash reserve that can be used during the policyholder’s lifetime. This reserve can be utilized for educational expenses, an emergency fund, and volatility buffer in retirement distribution planning.

This can prove to be a key component to helping clients develop a strategy for beating the “4% rule“ of retirement distributions. Consulting with a retirement income expert can provide tailored advice and implementation plans that align with your individual financial goals.