Life Insurance for the Financially Independent

Turns out, there are different levels of financial independence

Financial independence is about the ability to live off your assets entirely, so you’re no longer bound by the daily grind.

But financial independence from a life insurance perspective is a little different. In this instance, it’s important to factor in how much debt you have and whether you have loved ones who are dependent on you.


Why debt and dependents are key

No debt and no dependents: that may be the highest level of financial independence.

Life insurance might not seem essential here. After all, there’s nothing to take care of when you pass. In this instance, although whole life’s death benefit may not be as important to you, the policy’s cash value component could still be a valuable way to diversify your income streams while you’re living.

Now let’s say you have some debt, but no dependents — your position is nearly as strong, because your debt can be settled by your estate. Here, like in the previous instance, a whole life policy could still provide diversified income.

Which brings us to families with means and dependents.

Even without debt, having young children or a dependent with a disability means you’ll need to plan for their financial protection, particularly during the period when the distribution of your estate is being finalized. This can take a long time depending on the composition of your wealth. A whole life policy could provide a valuable death benefit payout in the meantime.

And what if you have both debt and dependents?

It’s the most common scenario, but you’re at the lowest level of financial independence. A whole life policy can be a real lifeline here, delivering financial benefits within a relatively short time, to help keep potential creditors knocking on their door. The benefit payout could also help them with estate-related costs.


1) All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.

2) Some whole life polices do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.

3) Policy benefits are reduced by any outstanding loan or loan interest and/or withdrawals. Dividends, if any, are affected by policy loans and loan interest. Withdrawals above the cost basis may result in taxable ordinary income. If the policy lapses, or is surrendered, any outstanding loans considered gain in the policy may be subject to ordinary income taxes. If the policy is a Modified Endowment Contract (MEC), loans are treated like withdrawals, but as gain first, subject to ordinary income taxes. If the policy owner is under 59 ½, any taxable withdrawal may also be subject to a 10% federal tax penalty.

4) State creditor protection for life insurance policies varies by state. Contact your state’s insurance department or consult your legal advisor regarding your individual situation.

Pub11601  2022-138591 Exp. 5/24

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