There really isn’t one specific type of life insurance that best suits everybody’s different circumstances.
The two main types of life insurance are permanent life insurance and temporary life insurance. There are different types of permanent insurance, including whole life, universal life, index-universal life, variable life and variable-universal life. Term insurance is generally known as temporary insurance because it only provides protection for specified number of years. (Example: 10, 20, 30 year terms are common options). However, I’m mainly going to focus on permanent insurance in this blog post.
Some of the advantages of permanent insurance are:
- Permanent Insurance can provide protection throughout your lifetime! Permanent Life Insurance can provide guaranteed lifelong protection (or to a specific age) as long as necessary premiums are paid. Although after a pre-determined period, many times premiums can even be made from the cash value of the policy depending on how the policy was set up.
Side Note: Since the face amount of the policy is payable upon the death of the insured person, the element of risk to the insurance company is much different than it is for say, an automobile policy. When an insurance company issues an auto policy, it hopes you will be a safe driver and will never have an accident, so you will never file a claim. Likewise, a Term policy is initially set for a specified number of years and when that period ends, generally the term life insurance policy terminates. Then if the insured passes away after that policy has terminated, the insurance company is not required to pay a death benefit at all! I read in a Forbes article that 95% of all term policies go unpaid. In other words, if you took a random sample of 100 people who purchased term insurance, 95 of them would outlive their terms. The insurance companies know this. That is how they can afford to offer very low premiums for term insurance. In contrast, when an insurance company issues a "permanent" life insurance policy, it knows it will be called upon to pay a claim someday, because every human being dies sooner or later, thus the more expensive premium. For the insurance company, the only unknown is whether the claim will be made in the first year or in a number of years in the future.
- Ability to access cash that has accumulated, in the form of loans and withdraws after a certain period of time. (Cash can be accessed Tax Free. Either in the form of loans or you can withdraw funds up to the amount you have put into the policy via premiums tax free!)
- Policy owners don’t pay taxes on the gains within the policy each year, and that money can be used in retirement to supplement their retirement planning.
- Depending on the type of permanent insurance, but most can be set up with level premiums. (Payments stay the same & never increase throughout the entire policy.)
- Provides for business continuation. Permanent life insurance is typically a better solution than term for funding a business continuation plan. It ensures that the policy will be in force regardless of how long the business owner stays active in the business. Policy cash values may be available to fund a lifetime buyout or supplement an owner’s retirement.
- Creditor Protection. (Some state statutes protect cash value from the claims of creditors.)
- Cash Value Life Insurance is not a factor in determining eligibility for financial aid. As a general rule, policy cash value is not a factor used in determining eligibility for financial aid for college.
- In contrast to a tax qualified account such as 401(K), IRA, etc., life insurance death benefit amount paid out when the insured passes is completely tax free to the beneficiaries! (Although that benefit is also the same as for term life insurance, but I just thought I’d mention it here anyway as reminder.)
Note: Life Insurance information can be confusing to many people. As an "independent licensed agent" I can explain things to you in simple terms so you feel comfortable making a decision. Then I can help you choose a life insurance policy, from many choices of different insurance companies, that you feel fits your needs. Plus if you choose to work with me you will have personalized service by a local agent that can shop premium quotes for you. If you would like my assistance to discuss and/or start the process of getting you insured please call me at 941-404-5334.
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