Protect Yourself, Part II: How You Can Control Your Financial Risk 

A first step toward financial security is to think through what might happen in life – your dreams for the future as well as things that could get in their way. Whatever goals you set, if you expect to achieve them over the long haul you have to manage risk.

Life Insurance: Financial Fall-back and Opportunity

It’s a fact that unexpected things happen, and they can be expensive. Cars and homes need repairs, jobs can come and go, and health issues demand recovery and resources. Any of these situations – and more – can pose personal and financial challenges for families.

While you can’t always prevent the unexpected from happening, you can protect yourself financially. That’s why many people use life insurance as the risk-management foundation of their financial security plan.

Best known for paying a death benefit to beneficiaries, life insurance has many options that can also meet multiple needs during your life. Term life insurance provides coverage for a limited period of time (10-20 years) at a lower premium and offers an option to convert to permanent life insurance. Permanent life insurance can provide death benefit protection for a lifetime, and also accumulates cash value that can be tapped through disbursements or policy loans for other needs throughout life. Northwestern Mutual permanent life insurance policies are eligible for an annual dividend, which can be used in various ways, including paying premium, purchasing additional insurance, or distributing cash.

Your financial representative can explain the many ways life insurance can be used to help manage financial risk and seize opportunity. Here are some of them:

Coverage risk – When term insurance expires after a 10-to-20-year contract, you must apply for a new policy and approval usually is subject to underwriting. Getting permanent insurance at a younger age protects your insurability for life, helping you avoid the risk of being denied insurance due to health issues that may develop. If life insurance comes through your employer, having your own policy ensures you are protected even if you leave your job.
Debt or business risk – Once it is accumulated, the cash value of permanent life insurance can be used to fund home down-payments or improvements, start a business, pay for emergency expenses or address other debt. As a long-term financial vehicle, permanent life insurance offers great benefits once cash value has accumulated over time.

Education expense – If education is a priority for your family, life insurance can play a part in your college savings plan. Grandparents or other relatives may wish to leave a legacy of support for education through life insurance policies, and the cash value of permanent life insurance can be tapped to pay college expenses.

Health risks – Permanent life insurance cash value can pay medical expenses or address the cost of long-term care. Some people use cash value to pay long-term care insurance premiums. A disability waiver on your life insurance policy can protect against risk by confirming that Northwestern Mutual will pay your premiums should you become disabled.

Longevity – With the average American living past age 80, retirement can last 20 to 40 years, making ongoing income an important concern. Another option is to convert permanent life insurance cash value to supplement retirement income. Your financial representative can discuss your options.

Tax risk – Permanent life insurance cash value grows tax-deferred, a significant advantage over other financial products, and life insurance death benefit is tax free to the beneficiaries. That is one reason why life insurance is often used as an estate and business planning tool to pay for estate taxes or business liabilities.

Life insurance is the bedrock of any sound financial security plan and the critical foundation for controlling risks. It is also a tool that must be selected based on your individual circumstances. Your financial representative can provide the information and guidance to help you determine the policy or combination of policies that will best meet your needs.