If you have dependents and are worried about their financial future in the event of your death, then life insurance is a great investment. Life insurance provides financial assistance in the event of the policyholder’s death; giving family members money to adjust to one less source of income, help pay for funeral expenses or pay of debts. Life insurance is offered in a variety of forms, but permanent life insurance does not expire, ensuring a pay out when the policy is kept current.
When shopping for a life insurance policy, people often first consider a term life insurance policy, because in general, they are much cheaper. The price may be a benefit, but what many people overlook is the fact that not only do these policies expire, but also they expire without any obligation to pay out. This is one of the biggest benefits of a permanent life insurance policy; there is an investment factor.
When paying a higher premium for permanent life insurance, consider that you are also investing for your future. The extra cost gives the policyholder a forced savings, which can be utilized later in life.
Often people only consider the death benefits that life insurance provides, and with a term life insurance policy that is all that is provided.
Another key advantage for whole life insurance is that the cost of the premiums does not increase, which with term life insurance policies is not true. Term life insurance policies’ premiums increase over time because of changes to your health and age, increasing the chances of dying and increasing the risk for the insurance company. Permanent life insurance does not change, no matter how old or sick a person becomes.
Permanent life insurance policies actually get cheaper over the course of time when you consider the inflation factor. Also, the investment aspect has advantages in that it is untaxed. With 401K investments, you will be paying taxes on the funds as soon as you start withdrawing them. With permanent life insurance policies you pay the premiums with after-tax dollars. The money grows without any taxation and you are only taxed after your withdrawals from the policy surpass the total amount that you put into the policy.
Permanent insurance policies also pay dividends.
Let’s say the policyholder pays $5,000 into a policy. At the end of the year the insurance company looks at how much they earned from the policy. Let’s say they earned $500, or 10 percent on your policy. The insurance company can then give some of this back, and because it is not an actual gain, it is a return of premium and it is not taxable under current laws (2013). If you are shopping for life insurance, it is important to understand the differences between a permanent life insurance policy and a term life insurance policy.
Your local independent life insurance agent will be able to walk you through the benefits of both, and be able to tell you if you would benefit from a permanent life insurance policy.
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