When it comes to financial planning, most experts agree that life insurance is one of the best investments one can make. Life insurance plays an important roll in the following situations
- Paying federal “death” taxes and state “death” taxes
- Making significant charitable contributions
- Creating an inheritance for your heirs
- Replacing income for dependents
- Creating a source of savings
- Paying for final expenses
Term Life Insurance
Term Life Insurance is an insurance policy that provides an agreed amount of coverage over an agreed term length. This gives you an option in which if you pass away during the policy term an amount from the lump sum is paid out to whomever you placed in the policy. It is a cost effective way to provide for your family after you are gone.
Inexpensive term policy premiums are lower than other plans, but for a fixed term. The best term life plans are usually quite affordable. Term life insurance will cover an individual for a set period ranging anywhere from 5, 10, 20 to 30 years. Upon expiration if you renew, your premium may increase. Term life insurance is popular today due to its flexibility that allows you to pick a policy when you feel you need it.
- Many companies offer economical term life insurance policies, but these policies offer less financial coverage, and there may be certain issues regarding the term limits.
- Premiums on affordable term life insurance remain fixed for the policy duration or limit and will vary based on the individual.
- Policy payouts can range from $10,000 to $1 million or more, which is the amount your beneficiaries will receive upon your death.
- Term life insurance covers funeral expenses and other costs.
- Term life insurance has the lowest premium cost. The insurance company only accepts the risk of insuring your life for a specified period of time, betting you will live for 5, 10, 20 or 30 years.
- The higher amount of coverage you choose, the higher your premium. Among other factors affecting your premium are pre–existing conditions, age, marital status, children and occupation.
Permanent Life Insurance
Permanent life insurance will cover you for your whole life with premiums calculated to cover the cost of insurance until a very advanced age, typically 100. If you live past the advanced age the policy is calculated for, you will no longer need to pay premiums, and in some cases, may receive your death benefit as a birthday present. If you pay premiums for your whole life, then this is also called whole life or straight life insurance.
Even though the premiums are calculated to provide you with insurance over a long life, you may select a policy that can be paid off in a shorter amount of time. Common pay off periods are ten or twenty years. In order to receive the full tax benefits of insurance, such as a tax-free death benefit, the payoff period must be longer than seven years.
One type of permanent insurance is called Universal Life.
- Universal life insurance separates the cost of insurance from the cash value, and many products are indexed to security indexes like the S&P 500, allowing for greater returns.
- Most policies guarantee that the return will never be negative, and some provide a guarantee that there will be no lapse. This means that as long as you pay an agreed upon minimum payment, the insurance company will not lapse your policy because the returns are not large enough to cover the cost of insurance.
- Gains in the value of your insurance policy can increase your death benefit, increase the cash value, and generally provide you with ways to access the money in your policy while you are still alive.
- Universal life insurance is also an investment or savings vehicle. You may assume more risk with universal life than with whole life, but can be rewarded with greater returns.