Life Insurance is most commonly used to financially protect your family from the premature death of you and/or your spouse. Unfortunately, it's probably the least favorite thing to plan for. And, as a result, adequate planning is often put off until it's too late.
Although it may sound simple, there are many things to consider. There are many ways to protect your family with life insurance. So, consulting with a Life Insurance Professional can be vital!
Although it may sound simple, there are many things to consider. There are many ways to protect your family with life insurance. So, consulting with a Life Insurance Professional can be vital!
Not Only For Family Protection
Life insurance planning is not only for those who support
a family. There are several reasons for thorough life insurance
planning. For example, have you recently purchased a new home?
Have you recently been married? Have you made career changes?
Other key purposes of life insurance include retirement and
estate planning.
Life Insurance Proceeds & Taxes
Many people don't realize that even though life insurance
proceeds are paid income tax-free to the beneficiary, there's
a good chance the proceeds will be included in the value of
your estate which may be taxed.
What if I Have Life Insurance Through Work?
People often make the mistake of assuming their employer-provided
life insurance is adequate. However, employer-provided life
insurance is typically only equal to one year's salary...far
from enough for the family provider to protect his/her family
adequately, and not enough for the average single person to
repay outstanding debts – often leaving parents and
siblings dealing with such bills.
Other types of life insurance provide both a death benefit and a cash value account. Their premiums are larger than term life premiums, because they can provide coverage that is guaranteed for life (past age 100). They may also include a savings element. These policies are often referred to as cash value policies. They include: Whole Life, Universal Life, and others.
Whole life insurance provides permanent protection for your dependents while building a cash value account. With this type of insurance, the insurance company manages the policies various accounts. It provides a fixed premium which can't increase during your lifetime as long as you continue to pay the planned amount. It provides you the option to receive dividends from your policy or apply them to reduce payments. It offers you the right to withdraw from the policy during your lifetime. It doesn't offer premium flexibility or face amount flexibility.
Universal life insurance provides permanent protection for your dependents and is more flexible than whole life. It pays a death benefit to the beneficiary you name and offers you a low risk cash value account and tax deferred accumulation. It allows you to earn market rates of interest on your cash value account. It offers the right to borrow or withdraw from the policy during your lifetime. It allows you premium flexibility. It offers face amount flexibility. It doesn't offer you the account flexibility to invest in separate accounts such as money market, stock, and bond funds. It doesn't allow you the account flexibility to split your money among different accounts or to move your money between accounts.
Imagine getting a money-back guarantee on your Term Life Insurance: Your family receives a lump sum of money if you die, but if you live the company returns all of your premiums! Believe it or not, such a product now exists and is just one of the innovative solutions coming your way from some of the best insurers in the business.
Before this innovation, life insurance was available in two forms: Term Insurance and Cash Value Insurance.
Term Insurance is cheap and easy to understand. With Level Term Insurance, you know exactly what the premiums will be for a fixed number of years. It’s very affordable life insurance protection, but you get nothing if you outlive the policy.
Cash Value Insurance, on the other hand, includes pure insurance coverage – guaranteed renewable for your whole life – along with an investment component to build cash value. Building cash value, however, means paying higher premiums. While an unused term policy can feel like a waste, a cash value policy can often cost two or three times as much for the same coverage.
Return of Premium (ROP) Term is an effective new solution that splits the problem up the middle. It starts out like Term Life Insurance with one extra promise from the insurer: If you pay your premiums and you live, we’ll give you your money back. On a typical 20 year Level Term Life Insurance policy the ROP feature could cost about 30% more, but that extra premium will allow you to receive back everything you’ve paid in.
2. It's inexpensive. You aren't paying anything extra to fund a savings account or cover investment fees. And because the market is so competitive for term insurance, companies have a huge incentive to keep prices low.
3. It's easy to shop for. With relatively little effort you can comparison shop and assure yourself of a good deal.
4. You pay only for what you need when you need it. You typically need life insurance coverage for a specific period of time (until the kids are out of college, for instance).
Benefits of a Permanent Life Insurance Policy
1. Flexibility. A permanent plan can give you access to some
or all of the premiums that you have been paying for in a
way favorable to your taxes.
2. It's with you until you die. This type of policy coverage is guaranteed for your life with no out of the blue payment increases. A term policy will expire at a certain date, and a renewed policy could have much higher premiums.
3. Inheritance. Maybe the best reason for a permanent policy is to make sure your estate and investments don't get eaten up by the government. A permanent policy can provide the security of knowing that your family and loved ones will be taken care of for the future.
Remember, the decision to buy a permanent or a term life insurance policy will depend on your situation, your age, your financial well-being, and other factors. If you are a young family with some assets to protect but not financially stable a term life policy might be a good idea to protect those assets and your family. However, if you are financially stable with considerable assets, it may be a better decision in the long run to purchase a permanent plan. Used with permission from the Insurance Information Institute, Inc.
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