Which Ones Right For Me
Well, there are several factors to consider before deciding on a whole life or a term life insurance product.
First off, what can you afford? If you find that whole life insurance policies are too expensive, you may need to settle for term life insurance.
However, if youre lucky enough to be in a relatively stable situation money-wise, and your primary concern is taking care of your beneficiaries. Whole life insurance will probably be the more appealing option.
In the end, its a better investment, because your family will receive the money you put in, plus interest.
In the end, as long as your buying some type of life insurance, youre taking the correct steps. Life insurance is well worth the investment and is one of the noblest purchases that money can buy.
While still being alive, and family protected, you will sleep better at night. Furthermore, and after youre gone, the life insurance youve invested in will continue to take care of them.
Key Risks Of Your Variable Life Insurance Policy
- Not a short-term savings vehicle. A variable life insurance policy is designed to provide a death benefit or to help meet other long-term financial objectives.
- Policy lapse. If you do not maintain sufficient cash value to pay your policy fees and expenses, your policy may lapse. That means it will terminate without value and your beneficiary will not receive any death benefit. A significant number of life insurance policies lapse.
Example: If your policy has a current value of $40,000 and fees and expenses that are $10,000 per year , your policy may lapse within four years. This could occur sooner due to poor investment performance or if you make a withdrawal or take a policy loan. Positive investment performance and paying additional premiums can reduce the risk of lapse.
Is Life Insurance A Good Investmenthonest Opinion
Insurance could be very very confusing and if you have any other questions you should always consult with an insurance professional. You have to be very very careful because sometimes a lot of insurance people that just sell people. You want to consult with a professional. It actually knows what theyre talking about so any questions always consult with a professional. Now I want to give you my perspective and educate you on a little bit about the different types of insurance.
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When It Makes More Sense To Buy Life Insurance
If you’re paying off high-interest debt, lack an emergency fund, or are dealing with income insecurity, paying premiums for a life insurance policy may strain your budget. However, you may want to consider life insurance if any of the following situations apply to you:
- You have a family. Term life insurance costs less than a whole life policy even more so if you’re young and generally healthy. If you’re looking to provide your family with a safety net should the unthinkable happen, a term policy might be an affordable option. The average monthly premium for a 20-year, $500,000 policy for a healthy 35-year-old male costs about $30, according to Policygenius.
- You’re conservative with your money. Those who have their financial ducks in a row might like the idea of accumulating a cash value in a permanent life insurance policy. It offers a way to create a pool of money you can draw on if necessaryor leave to your beneficiaries.
How Much Life Insurance Do I Need
Life insurance is designed to protect those who depend on you financially.
You can also get coverage to ensure your funeral costs, debts, and tax liabilities are covered when you pass.
Experts advise you should have coverage that is anywhere from 5x to 10x your annual income. Since there is no consensus on a specific amount/coverage you should get, a practical way to estimate your life insurance coverage needs is to use DIME formula, that is:
- Debts: How much debt will your family have to deal with .
- Income: Determine how long your family will need financial support and multiply that by your annual salary.
- Mortgage: Add your mortgage balance.
- Education: Estimate how much it will cost to put your kids through post-secondary education.
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What If I Change My Mind
You may cancel your policy within a short period of receiving it without charge. Upon cancellation, you will typically receive a refund of your premiums. The refund may be adjusted up or down to reflect the performance of your investment options. The length of the free look period may vary depending on the state where you signed your application.
- The federal tax rules that apply to variable life insurance can be complicated. In addition, there may be state tax implications. Before investing, you may want to consult a tax adviser about the tax consequences of investing in variable life insurance.
- Your cash value may accumulate on a tax-deferred basis. This means you will only be subject to federal income tax when you withdraw money from your policy. The policys gains will be subject to ordinary federal income tax rates rather than lower capital gains rates.
- You may take loans from your policy without paying federal income taxes. However, if your policy terminates with a loan outstanding, you may owe federal income taxes on the loan.
- The death benefit paid to your beneficiaries is not subject to federal income tax.
- Under certain circumstances, the death benefit may not be subject to federal estate tax.
Life Insurance Investment Vehicle
When using life insurance as an investment vehicle it is wise to talk to a seasoned professional or financial advisor.
For instance, if you are a social security age you should not be open to any risks. At this age, your retirement accounts need to be protected and/or hedged against a market downtrend and inflation. In some cases, life insurance may be a great help!
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Is Life Insurance A Good Investment: A Final Word
There are many good reasons to purchase a life insurance policy: to take care of your children after you pass away, to support your business and business partners when you die, or to make sure your debts and obligations become the obligation of your loved ones.
There are also many different types of life insurance policies, and even further customization may be possible with the help of a life insurance agent or certified financial planner.
Term life insurance policies offer very little investment incentive, while whole life or universal life insurance have somewhat more of an investment, though it does take some time for any policy of this type to accrue a significant cash value.
In conclusion, life insurance should never be used first and foremost as an investment tool.
Instead, investment benefits offered through life insurance should be seen as nothing more than icing on the cake, supplementing the peace of mind offered by the coverage.
Should the unthinkable come to pass your family, loved ones, business partners, employees, and colleagues will be well taken care of. For more information about your first life insurance policy, see Expensivitys Complete Guide to Life Insurance.
Who Should Consider Whole Life Insurance
Whole life insurance may not be the right choice for everyone. The cost makes it prohibitive for many, and those looking for an aggressive investment vehicle could be disappointed in the returns they get from their whole life policy.
You may want to consider whole life insurance if you:
- Have a high net worth: Wealthy individuals searching for a way to defer taxes while accessing the policys value may be interested in purchasing a whole life insurance policy as part of their financial plan.
- Have trouble saving money: If you have trouble saving money by traditional means, putting money into the cash value portion of whole life insurance can help you. The regular premiums become a kind of forced savings, with money building up almost without you noticing.
- Want to ensure a death benefit is available for your family after your death: As long as you pay your premiums and comply with certain requirements, your policy will remain in effect for the rest of your life, and your loved ones will receive the death benefit. Term life insurance will also pay a death benefit, but only if the policy is still in effect when you pass away.
- May need an influx of cash down the road: If you have children and will need to pay for education expenses like college tuition in 15 years or so, whole life insurance could help. By that time, you may have built enough equity in the policy to pay off some of those college bills.
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Set Up A Replacement For Your Human Capital By Investing In Whole Life Insurance
Your portfolio growth is highly dependent on future contributions. Whole life insurance is a fail-proof way to arrange for the replacement your “human capital” if youre no longer around to provide for your family. Your human capital consists of the wages, benefits, Social Security, and any other unrealized forms of compensation you would customarily expect to receive in the future.
Is Life Insurance A Good Retirement Plan
Another way to view the benefits of life insurance is how it can be of value in the retirement years. Of course, there would be the payout to the named beneficiary in the case of death. Choosing one of the investment type life insurance policies could serve some retirement purposes.
Some like to apply the cash value of debt. It helps to make the retirement years less financially stressful. There can also be some potential tax benefits to investment-type life insurance plans.
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Shop Around For Quotes
If youve decided that universal life insurance is right for you, you can start shopping around for quotes. Many companies offer online quotes in just a few minutes, while others require you to speak with an agent to get an estimate.
The initial quote you get isnt a guarantee of your actual premium, but it can give you an idea of which carrier is most affordable. Youll still have to go through the application process and, in many cases, a medical exam to determine your actual costs.
Using Life Insurance As An Investment Good Idea
You might have discovered that life insurance isnt an investment.
Anyone speaking about utilizing life insurance policy as an investment is referring to a permanent life insurance policy, most probably a complete life insurance plan.
Whole life insurance is different from term life insurance in 2 big ways: it will not perish, and its a money value percentage. The latter is the point where the investment aspect comes from.
If you pay your premium for a whole life insurance plan, part of this goes into the life insurance that is insuring you, and a part of it belongs into an interest-earning investment that goes up in value exactly as any other long-term investment you would make.
As you are basically using your premium into both pay to get your insurance and finance the investment component of this coverage, and since the policy proceeds well into your golden years , whole life insurance is far more costly than term.
Because people are poor with money, particularly in the long run. Most either do not invest or even if they do they make bad investment decisions.
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Is Variable Life Insurance A Good Investment
Variable universal life insurance is similar to any other kind of universal or whole life insurance policy. Policies like these offer a death benefit, consumers pay a premium and they also accrue a cash value.
What variable life insurance allows you to do is pick from a set of mutual funds, giving the consumer more control over how their money is invested. For this reason, returns can be greater on a variable life insurance policy.
The greatest investment risk in a variable life insurance policy, however, is that the cash value can also decrease, given the fact that variable life insurance policies are tied more closely to the market.
Whats more, fees are also higher which can burn through some of your gains more quickly. So, like any kind of investment, theres risk, but theres also reward.
Defining Whole Life Insurance
Since whole life insurance is the more simple and popular type of permanent life insurance, its often the first choice of those who are looking at life insurance as an investment.
The basic way it works is similar to any life insurance policy: You pay consistent premiums to an insurance company, and in return, the insurer commits to paying a predetermined death benefit to your beneficiaries should you die.
With term life insurance, the explanation would stop there. But whole life insurance also includes a cash value component. So the monthly premiums you pay are, first of all, much higher than those you would pay for term . Secondly, the premiums you pay are generally divided three ways: a portion goes toward your death benefit, another portion toward your cash-value account , and yet another toward administration fees.
This setup means that every time you make a premium payment, your cash value grows. However, it usually takes about 10 years before you can accumulate a significant amount. Once you get to a certain amount, you can use the funds in the account to pay your life insurance premiums, take out a policyloan, supplement your retirement income, or in other ways.
Features of whole life insurance include:
- A death benefit
- Guaranteed rate of return
- Tax-deferred growth
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Question: Im 62 And About To Retire Should I Keep My Term Life Insurance Or Should I Invest In A Permanent Life Insurance Policy
Scott Hanson: I really like this question because it speaks to a lot of the people I meet who are on the brink of retirement.
First, let me address your need for life insurance after age 62.
For many of the people I work with who are in a similar stage of life, and about to retire, I often recommend they forego life insurance altogether.
Thats because, as a guideline, the older you are, the less likely it is that you still need it.
But there are always exceptions.
Generally, the circumstances under which you might want to continue carrying life insurance after 62 are not all that different from the need for life insurance when youre younger.
First, a quick disclaimer: We dont sell life insurance. We are licensed to because it allows us to provide detailed risk management recommendations as part of the comprehensive financial plans we create for clients.
Which brings us to term life, which is typically the only kind of life insurance Id recommend, and which is, in a sense, insurance that you rent.
With term life, once you are qualified, if you keep making the payments you stay covered. If you die within the term period , your beneficiaries receive a payout. Stop making payments, and your contract lapses and youre no longer covered.
Going deeper, how can you determine whether you should continue paying for your term life insurance?
When considering insurance as a financial hedge against your death , answer these questions:
It Is For Your Family
Just like any other type of life insurance, even this one is for your family more than it is for you. Amidst the mourning, they would be relieved to know you have got your funeral expenses covered, or your children wont have to spend their lives clearing your debts even while you are not around.
Investing in senior life insurance is a win-win situation, and we highly recommend utilizing your money to ensure your familys betterment.
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What Is Universal Life Insurance
Universal life insurance is a type of permanent life insurance policy that combines a death benefit with a savings vehicle. With this type of policy, youre guaranteed coverage for your entire life as long as you pay your monthly premiums.
You pay a premium each month, and it builds up a cash value that you can borrow from or withdraw later, says Leslie Tayne, an attorney and the founder of Tayne Law Group, a debt relief firm in New York. Compared to whole life insurance, universal life insurance offers greater flexibility since it offers adjustable premiums and an adjustable death benefit. However, experts typically recommend term life insurance over both universal and whole life insurance.
In general, experts warn against treating life insurance as an investment. Life insurance is not meant to be an investment vehicle for the living, says Jeremy Schneider, founder of Personal Finance Club. The concept of insurance is to protect yourself financially if an unlikely but expensive bad thing happens or in this case, protecting your loved ones who depend on your income in the case of your death.
Can Be Used In Estate/retirement Planning
Many wealthy people use whole life insurance as a tool in their estate planning. In most cases, the death benefit of life insurance isnt taxable, so it can be used as a way to avoid certain taxes and pass on a tax-free inheritance. Whole life insurance can also be used to supplement retirement income during your lifetime .
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Is Investing In Life Insurance Worth It
Whilepermanent life insurance can be treated as an investment, the high cost of cash value policies and their associated fees and penalties means itâs usually not an effective way to grow your money. The cash value is a tax-deferred savings account that gains interest and grows over time, but every policy is different in how the cash can grow or shrink.
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