25:["$","$L26",null,{"category":"$27","relatedArticles":[{"id":"cG9zdDoxNjkzNTk=","databaseId":169359,"postId":169359,"author":{"node":{"id":"dXNlcjoxMzI=","databaseId":132,"userId":132,"avatar":{"url":"https://secure.gravatar.com/avatar/84dcefeec2c4c48841f085fc9d50d96e?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":null,"additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Bob","fullName":"Bob Haegele","lastName":"Haegele","name":"Bob Haegele","postCount":{"pageInfo":{"offsetPagination":{"total":110,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"bhaegele","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybTo0NzIy","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":{"pageInfo":{"offsetPagination":{"total":76,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$28","date":"2022-08-23T08:27:22","excerpt":"

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Collateral assignment enables you to use your life insurance as collateral for a loan. This allows you to be approved for a loan if you don’t want to put your other assets at risk. Here is how collateral assignment loans work, as well as the pros and cons and alternatives to collateral assignment. For more help with loans or life insurance, consider working with a financial advisor.

","

What Is a Collateral Assignment of Life Insurance?

","

When you apply for a loan, such as a business loan, the lender might require collateral before approving the loan. One way to provide collateral for the loan is to use your life insurance policy. If you die before fully repaying the loan, the policy’s death benefit will reimburse your lender first. Then, any remaining funds will go to your beneficiaries.

","

Not all lenders will allow you to use your life insurance as collateral, and if they do, they may require you to buy a new policy that can be used for collateral. The lender will be listed as an assignee on the collateral assignment form, which is different from indicating the lender as a beneficiary on the policy.

","

Lenders are often willing to accept this kind of arrangement because money is guaranteed if the borrower defaults or dies before the loan is repaid. To use your life insurance as collateral, you will have to apply for collateral on your new or existing policy.

","

How to Apply for Collateral Assignment

","

If your loan requires collateral, there are a few basic steps you must complete to use your life insurance as collateral. We’ll outline those steps here. Firstly, check to see if your existing policy allows collateral assignment and if the policy’s death benefit is sufficient to cover the collateral requirements of the loan. If your existing policy comes up short, you may need a new life insurance policy; if so, make sure the new policy passes both checks.

","

Once you have your policy you can use for collateral, you must fill out a collateral assignment form. There, you will indicate your lender as the assignee for the death benefit. Both you and your lender will have to assign the form to provide your approval. At this point, your bank should be able to confirm the collateral assignment and you can apply for your new loan.

","

Collateral Assignment Benefits

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If your credit isn’t the best, your lender might ask for collateral. Using your life insurance policy as collateral might be worth considering. Here are some possible reasons:

","

No risking your personal assets: A lot of people’s most valuable assets are their houses and vehicles, which can make them work well as collateral. The problem is that the lender could seize them if you default or pass away before the loan is repaid.
Cheap alternative to personal loans: Life insurance rates vary on many factors such as your age and health. However, if your policy has low premiums, it might be cheaper than taking on a personal loan.
Gain access to the funding you need: If a lender asks for collateral, they just want something that can recoup the lost income from the loan. If your life insurance meets that requirement, your lender should be willing to accept it.

","

Collateral Benefit Downsides

","

There are, as with any financial choice, potential downsides as well:

","

May reduce death benefit for beneficiaries: If you indicate your lender as assignee on the collateral assignment form, they will be paid before your beneficiaries, if necessary. If you have a whole life policy with a cash value, it may be sufficient to cover the cost of the loan. If not, your beneficiaries’ death benefit may be reduced.
May require a new policy: Your insurer may not allow you to use your existing policy as collateral. If so, you may have to buy a new policy if you still want to go this route.

","

Possible Alternatives

","

There are alternatives to a collateral assignment of life insurance that you may want to consider. In addition to the downsides of this arrangement, you may want to reserve your life insurance for other purposes, such as debt repayment.

","$30","

The Bottom Line

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Collateral assignment of life insurance allows you to use your life insurance policy as collateral when applying for loans. This is especially common when applying for business loans. However, your insurer must allow this arrangement, and the policy must be sufficient to cover the collateral requirements. Using your life insurance policy comes with certain benefits, such as not risking your personal assets. But it also has downsides, such as requiring a new policy in some cases. Consult a financial advisor before making any major financial decisions.

","

Tips for Buying Life Insurance

","$31","

Photo credit: ©iStock.com/milan2099, ©iStock.com/AmnajKhetsamtip, ©iStock.com/PeopleImages

"],"experts":null,"link":"/life-insurance/collateral-assignment-of-life-insurance","published":{"datetime":"2022-8-23","readable":"August 23, 2022"},"shareInfo":{"title":"What Is a Collateral Assignment of Life Insurance?","origin":"/life-insurance/collateral-assignment-of-life-insurance"},"isNewsArticle":false},{"id":"cG9zdDoyMDk0OQ==","databaseId":20949,"postId":20949,"author":{"node":{"id":"dXNlcjoyOA==","databaseId":28,"userId":28,"avatar":{"url":"https://secure.gravatar.com/avatar/c2129e3c852ac8063af4562fe9605e22?s=96&d=mm&r=g","size":96,"__typename":"Avatar"},"description":"Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children. Rebecca also holds the Certified Educator in Personal Finance (CEPF®) designation.","additionalMeta":{"expertise":null,"__typename":"User_Additionalmeta"},"email":null,"firstName":"Rebecca","fullName":"Rebecca Lake, CEPF®","lastName":"Lake, CEPF®","name":"Rebecca Lake, CEPF®","postCount":{"pageInfo":{"offsetPagination":{"total":1252,"__typename":"OffsetPaginationPageInfo"},"__typename":"UserToPostConnectionPageInfo"},"__typename":"UserToPostConnection"},"slug":"rlake","__typename":"User"},"__typename":"NodeWithAuthorToUserConnectionEdge"},"categories":{"nodes":[{"id":"dGVybTo0NzIy","children":{"nodes":[],"__typename":"CategoryToCategoryConnection"},"databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":{"pageInfo":{"offsetPagination":{"total":76,"__typename":"OffsetPaginationPageInfo"},"__typename":"CategoryToPostConnectionPageInfo"},"__typename":"CategoryToPostConnection"},"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"}],"__typename":"PostToCategoryConnection"},"content":"$32","date":"2014-09-10T10:00:47","excerpt":"

\n","featuredImage":{"id":"cG9zdDoxNzIyMzU=","databaseId":172235,"altText":"SmartAsset: Top 10 Reasons to Buy Life Insurance","date":"2022-11-08T17:32:55","fileSize":48662,"mimeType":"image/jpeg","modified":"2022-11-08T17:32:55","sourceUrl":"https://smartasset.com/wp-content/uploads/sites/2/2014/09/iStock-1326856086-3.jpg","__typename":"MediaItem"},"modified":{"datetime":"2024-3-7","readable":"March 7, 2024"},"multipleBylinesByRole":{"editedBy":null,"reviewedBy":null,"writtenBy":null,"factCheckedBy":null,"secondEditor":null,"hideAuthor":null,"__typename":"Post_Multiplebylinesbyrole"},"adTargetingOverrides":{"fieldGroupName":"adTargetingOverrides","pageGroupNewKey":null,"__typename":"Post_Adtargetingoverrides"},"seo":{"canonical":"https://smartasset.com/life-insurance/top-ten-reasons-to-buy-life-insurance","metaDesc":"You may have heard you should get life insurance to protect your family in case you die but there are many other reasons to purchase a policy.","metaKeywords":"","metaRobotsNofollow":"follow","metaRobotsNoindex":"index","readingTime":5,"title":"10 Reasons to Buy Life Insurance","__typename":"PostTypeSEO"},"slug":"top-ten-reasons-to-buy-life-insurance","status":"publish","title":"10 Reasons to Buy Life Insurance","uri":"/life-insurance/top-ten-reasons-to-buy-life-insurance","tags":{"nodes":[],"__typename":"PostToTagConnection"},"__typename":"Post","adPageGroupOverride":null,"bylines":{"writtenBy":{"id":"dXNlcjoyOA==","databaseId":28,"userId":28,"avatar":"$33","description":"Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She's worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children. Rebecca also holds the Certified Educator in Personal Finance (CEPF®) designation.","additionalMeta":"$34","email":null,"firstName":"Rebecca","fullName":"Rebecca Lake, CEPF®","lastName":"Lake, CEPF®","name":"Rebecca Lake, CEPF®","postCount":"$35","slug":"rebecca-lake-cepf","__typename":"User"},"editedBy":null,"reviewedBy":null,"factCheckedBy":null,"secondEditor":null},"category":{"id":"dGVybTo0NzIy","children":"$38","databaseId":4722,"categoryId":4722,"link":"https://smartasset.com/life-insurance/articles","name":"Life Insurance","postCount":76,"slug":"life-insurance","ancestors":null,"parent":null,"__typename":"Category"},"isModifiedBeforePublished":false,"contentBlocks":["

Life insurance is one of those things that just about everyone needs but far too few people actually have. It’s easy to put off purchasing a policy when you’re young and relatively healthy. But the longer you wait, the greater the chance of something happening before you get yourself coverage. Maybe buying life insurance has been on your to-do list for a while but you haven’t gotten around to it yet. Here are 10 reasons why you can’t afford to wait any longer.

","

A financial advisor can help you put an estate plan together for your family’s needs.

","

1. Replace Lost Income

","

Life insurance works to provide financial security to your loved ones after you pass away. You have to consider what would happen if you were to die suddenly. This is especially true if your loved ones rely solely on your income. Get yourself adequate coverage. That way, you won’t leave your loved ones helpless when the monthly bills come around.

","

2. Cover Burial Expenses

","

Sadly, even a basic funeral service can run upwards of several thousand dollars. While it’s possible to pre-pay for your funeral, people don’t often think that far ahead. Pre-payment can ensure everything is in place for your loved ones after you die. However, there are risks to pre-payment. Life insurance can give you and your beneficiaries more of a guarantee, lifting a burden off of them as well as yourself.

","

3. Pay Off Debt

","

Just because you die doesn’t necessarily mean your debts will disappear. In the instance that you and your spouse have co-signed for a mortgage or other loans, your spouse may become entirely responsible for repayment. The other outcome could result in creditors trying to collect from your estate. While that gets rid of your debts, your heirs will receive the depleted remainder. Life insurance allows those you leave behind to take care of any lingering financial responsibilities.

","

4. College Planning

","

There are a number of ways to save money for your child’s education. You may not have thought that a life insurance policy would be a viable option. But insurance payouts can actually provide a good supplement to your savings. If your child ends up borrowing money to get through school, the insurance proceeds could also help wipe out pesky student loans.

","

5. Build Cash Value

","

Term life insurance, a type of life insurance, stays in place for a set period of time. But another option, whole life insurance, provides permanent coverage that only ends if you cancel the policy. Whole life insurance allows you to build up cash value over time, an attractive prospect to any person. That cash value acts as an extra cushion that you can tap at any time. This may come in handy if you have a financial emergency down the road.

","

6. Diversify Investments

","

Some people also use life insurance as an investment tool with universal life policies. These policies are tied to a specific investment product. Then policyholders receive dividend payments based on the product’s performance. Before you dive into this type of insurance, you’ll want to read the fine print. That way you’ll know the potential risks and returns before you commit.

","

7. Business Planning

","

If you own a business, it’s vital that you have life insurance. This covers your obligations so your hard work doesn’t go to waste. Are you involved in a partnership with someone else? You should both have coverage. That way, if one of you dies, the other isn’t left holding the heavy financial bag.

","

8. Estate Taxes

","

When someone passes away, their heirs often face estate and inheritance taxes on any assets they receive. If you’re worried about your loved ones getting hit with a big tax bill, a life insurance policy can help cover these added costs.

","

9. Coverage is Affordable

","

One of the excuses people tend to make for not buying life insurance is the cost. But truthfully, coverage often ends up pretty affordable for most people. Term life tends to be less expensive than whole or universal life. Plus, the younger and healthier you are, the lower your premiums will be. Unless you smoke or have a preexisting health condition, you could find coverage for as little as $1 a day. Compare policies now to see your affordable options.

","

10. Peace of Mind

","

No one can truly predict the future. But having life insurance means you and your loved ones can prepare for any eventuality. Even with a small policy, you may find yourself sleeping a little easier at night knowing that your family has protection in place should something happen to you.

","

Bottom Line

","

","

Life insurance can provide a financial cushion for when someone passes away. The decision to get life insurance is a personal question. But generally, it can benefit your family if they depend on your income. You may want to consult with a professional to know how much it could help you.

","

Tips for Life Insurance

","$3a","

Photo credit: ©iStock.com/Luke Chan, ©iStock.com/shapecharge

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Life insurance can provide a financial safety net for your loved ones when the worst happens, but getting approved can sometimes be an uphill battle. Aside from health considerations, there are a number of other things that insurers take into account. If you’re worried about getting turned down for life insurance, here are five factors that can affect your application.

","

Find out now: How Much Life Insurance Do I Need?

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1. You’re a Terrible Driver

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More than 32,000 people died in car accidents on U.S. roadways in 2013 and in many cases, the fatal wrecks were caused by reckless drivers. One of the things insurance companies might look at when you apply for a life insurance policy is your driving record. If your history is spotted with fender benders, speeding tickets or more serious offenses, you might seem like a bigger risk to an insurer.

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2. You’re a Thrill-Seeker

","

","

Accidents of all kinds resulted in over 130,000 deaths in 2013. If you’ve got an adventurous outlook and you like to engage in dangerous hobbies like sky-diving, rock climbing or white water rafting, those are all things that could prevent you from being approved for a life insurance policy. The riskier your lifestyle, the more cautious an insurer might be about extending coverage.

","

3. You Don’t Make a Lot of Money

","

Surprisingly, insurance companies might care about the size of your paycheck. Depending on the company, you may have to prove that your income is above a certain threshold before the insurer agrees to cover you.

","

4. You Regularly Travel Overseas

","

If you routinely travel abroad for business or pleasure, those frequent getaways could make a life insurance company put the kibosh on your application. Insurers sometimes assign risk levels to different countries based on the likelihood that you would contract a serious illness there. Spending time in places labeled as “hot spots” could work against you and even if you are able to get approved for life insurance, you might end up paying higher premiums.

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Get life insurance quotes now.

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5. You Bungled the Application

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When applying for life insurance, you often have to answer an extensive list of questions about your health and your finances. Inflating your income or otherwise fudging the truth about anything could be automatic grounds for a denial, so honesty is always the best policy.

","

Even if you don’t intentionally make a mistake, leaving out crucial information or guessing at something could raise an eyebrow with the insurance company. This is especially true when it comes to things like your height or weight, since any inaccuracies will likely show up on a medical exam.

","

Related Article: No-Exam Life Insurance

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What To Do If You’re Denied

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If you’re turned down for life insurance, you might still have some options. You can check to see if your employer offers life insurance as part of its benefits package. The policy limits may be lower than what you’d get at an independent insurance company, but it could be better than nothing.

","

You could also look into guaranteed plans that don’t require medical exams. The downside is that premiums for these plans tend to be more expensive. But if you need life insurance, this kind of policy can give you peace of mind. And if all else fails, you can always apply again (maybe after you’ve improved your health, corrected application mistakes or improved your driving record).

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Photo credit: ©iStock.com/Juanmonino, ©iStock.com/Philartphace, ©iStock.com/seewhatmitchsee

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Whole life insurance policies not only cover a person indefinitely, but they can also pay dividends. As a policyholder, you can either receive these payments in cash, use them to offset future premiums or even purchase additional coverage with the money. But before committing to a dividend-paying whole life insurance policy, it’s imperative to understand […]

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What Is Whole Life Insurance?

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Unlike term life insurance, which has a defined coverage period, whole life insurance ensures coverage for the entire lifespan of the policyholder, assuming the premiums are paid. For instance, if a 30-year-old purchases whole life insurance, they’ll be covered for as long as they pay their premiums – whether they live to 70, 80 or beyond. Whole life insurance premiums remain the same for life, but are typically more expensive than term insurance premiums.

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In addition to a death benefit, whole life policies include a cash value component that grows over time and can be accessed during the policyholder’s lifetime. This is an added bonus that differentiates whole life insurance from term insurance. It’s this cash value component that attracts many people to whole life insurance, as it not only provides them with added security but also potential growth of their savings over time.

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How Dividend-Paying Whole Life Works

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However, whole life insurance policies may also have the added benefit of paying dividends. Should an insurance company report a profitable year, it may redistribute a portion of these earnings to whole life insurance policyholders on an annual basis. This profit-sharing methodology often depends on the company’s investments, expenses and capacity to manage risk effectively.

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The dividends that whole life insurance policies pay can either be guaranteed or non-guaranteed. However, whole life policies that pay guaranteed dividends will typically have more expensive premiums than those that do not guarantee their dividends.

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Dividend Payment Options

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You can choose to receive your dividends in a variety of ways: claim them as cash, use them to reduce your premiums, secure additional insurance or let them accrue interest. Here’s a closer look at the various dividend payment options:

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Cash

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Choosing the cash dividend payment option offers several benefits. First, it provides policyholders with immediate access to funds. This liquidity can supplement their income or help cover unforeseen expenses.

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Cash dividends are generally not subject to income tax, offering a unique advantage in terms of taxation. This can result in substantial savings compared to other taxable investment options, contributing to the policy’s financial efficiency.

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Reduced Premiums

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Premium reduction is another compelling way to use the dividends from a whole life policy. Policyholders can instruct the insurance company to apply the accumulated dividends to offset future premium payments. By consistently choosing the premium reduction option, policyholders can potentially see their coverage remain intact even as their premium costs decrease.

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Paid-up Additional Insurance

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Instead of receiving dividend payouts in cash, you can choose to funnel them back into your policy for additional coverage. This means that over time, your policy’s death benefit can increase substantially. It’s like giving your life insurance a boost to ensure your loved ones are even more protected.

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One of the key advantages of paid-up additional (PUA) insurance is its potential for cash value growth. These additional payments accumulate cash value over time, which can be borrowed against or withdrawn if needed.

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Furthermore, PUA offers a level of flexibility that can align with your changing needs. As your financial situation evolves, you can adjust the amount of PUA coverage, tailoring your policy to suit your life stages. This adaptability sets PUA apart as a dynamic and customizable option.

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Accumulate at Interest

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When policyholders opt to accumulate their dividends at interest, they essentially allow the insurance company to retain the funds on their behalf. Over time, these accumulated dividends accrue interest, steadily boosting the overall value of the policy. This can serve as a form of reinvestment, potentially leading to a more substantial financial gain in the future.

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Opting for the accumulation at interest option presents several advantages. First and foremost, it fosters a disciplined savings approach. The accrued dividends, along with the added interest, can create a reliable savings pool that may be accessed at a later date, offering a degree of financial security.

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Furthermore, the reinvestment of dividends, coupled with the compounding interest, can potentially yield a more robust financial outcome over time compared to immediate dividend payouts. This can be particularly advantageous when considering long-term financial goals, such as supplementing retirement income or funding educational expenses.

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Are Whole Life Insurance Dividends Taxable?

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Generally, life insurance dividends are considered a return of premium rather than income. As a result, they are typically not subject to income tax. This makes them an attractive option for policyholders seeking to accumulate wealth without incurring immediate tax liabilities.

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However, if you decide to leave your dividends with the insurance company, they may accumulate interest over time. The dividends themselves remain tax-free but the earned interest is taxable. Keep in mind that this interest is only taxed when it’s withdrawn, allowing for tax-deferred growth similar to other investment vehicles.

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Bottom Line

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Dividend-paying whole life insurance combines permanent coverage with the prospect of additional cash flow. Someone with this type of policy can receive their dividends in cash, use them to reduce their premiums, earn interest or use them to purchase more insurance. Keep in mind that dividend-paying whole life insurance is often more expensive, especially if the dividends are guaranteed.

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Tips for Buying Life Insurance

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