Life Insurance 101

Importance of Life Insurance

Importance of Life Insurance

Just like most things, there are advantages and disadvantages in financial investments, including life insurance.

Advantages of Life Insurance

  • Cash – It is a welcome cash payment to cover funeral costs, expenses of the last illness, or a bridge for debt or loss of income.
  • Tax – It offers a favorable tax advantage
  • Tax-free – The benefit is non taxable to the beneficiary
  • Estate Tax – With a designated beneficiary, the estate is not taxed for the payment
  • Cash – It offers cash value during the insured’s life
  • Withdrawals – Cash value on withdrawals are based on a first-in-first-out (FIFO) basis.  So, the cash value withdrawals up to the amount of the total premiums already paid, are essentially tax free.
  • Loans – Loans with the insurance as collateral are tax free
  • Exchange – A life insurance policy may be exchanged for another life insurance policy or an annuity without current taxation
Before settling on a plan for your life insurance, be sure to consult with a professional advisor.  Tax benefits are limited in certain circumstances.


Many policies are able to be adjusted to accommodate a change in the insured’s situation.  Death benefits can sometimes be decreased and premium prices reduced, eliminated, or increased.


Cash Value

While this is a relatively easy asset to access, remember that the investments for this money are based on the long term.  The length of time can have an effect on the amount of return at any given point.