Life insurance is a financial tool that will offer protection to your dependents when you die. But it can also be used as an investment vehicle to pay off your existing debts.

Apart from providing a lump sum of cash for your beneficiaries when you pass away, there are some other interesting ways to use your life insurance policy.

Prepare for Retirement

You might not be fond of the idea of taking out life insurance on your parents, so you’ll have enough money to get through your retirement, when they pass away. If you’re willing to try this, you’ll need to get the policy when your parents are 60, and you’re about 30 years old. The cost of the premiums will decline when your parents are 80 – by this time you’ll be closer to your own retirement.

Pay off Debts

The tax benefit is a key selling point for life insurance. Your beneficiaries will get a tax-free payout that they can use to pay estate taxes. Ideally, this should be on a separate policy setup up strictly for the purpose for paying off estate taxes and other debt. Without this policy, your family will be left with the burden of paying off your estate’s bill.

Withdraw Cash To Deal With Life’s Expenses 

Whole Life and other policies with an investment component accumulate cash value over time. Instead of increasing the amount of your premiums as you get older, most policy holders pay the same amount every month. This difference between what you pay versus what you should be paying creates a cash balance that’s accessible to you. You can withdraw and use the money, but you’ll have to pay it back to avoid deductions on the lump sum payout given to your beneficiaries.

Generate an Income For Your Retirement

Another type of policy, called an annuity, pays out a monthly payment to retirees. Your payments are invested and left to grow in an account and the money saved is paid back in later years. The type of payout is based on the type of annuity. Fixed income annuities provide a guaranteed source of income for as long as you live or for a fixed period of time. The payouts are predictable, regular, and remain unaffected by fluctuations in the market. Your income will vary if you choose a variable annuity.

The main selling point with variable annuities is their potential to earn more than fixed income annuities. If you choose a solid investment option in a strong market, you’ll have the opportunity to earn more in your retirement. But it can also swing the other way, and you can end up earning less than a fixed income annuity. Either way, both options will ensure that you have some extra cash to get through your retirement.

As you can see, life insurance is not just about leaving money for your family after you die. Purchase a policy when you’re young and your premiums will be affordable. Consider how you want to use your policy and get a plan that will give you the flexibility to do what you want.