Life insurance is a contract between you and an insurance company. The main purpose of life insurance is to provide a financial benefit to your loved ones in the event of an early death. Typical reasons for buying life insurance include paying funeral expenses, providing mortgage assistance, supplementing educational expenses for children and spouses, replacing lost income, and protecting the value of an estate after the insured passes on. Properly structured life insurance can be another retirement strategy for tax-advantaged income.
Life insurance offers a variety of benefits:
- Protection against the financial risk of dying too soon
- The opportunity for cash value accumulation
Life insurance could be right for you if you want:
- The reassurance of knowing your loved ones will receive financial assistance after you’re gone
- To add accumulation potential in addition to the death benefit
- Additional ways to help with supplementing expenses, including medical bills, college expenses, replacing lost income, or covering other emergency costs via policy loans.*
Different types of life insurance do different things:
Term Life insurance or Term assurance
Term life provides coverage at a fixed rate of payments for a limited period of time, the relevant term. After that period expires coverage at the previous rate of premiums is no longer guaranteed and the client must either forgo coverage or potentially obtain further coverage with different payments and/or conditions. If the insured dies during the term, the death benefit will be paid to the beneficiary. Term insurance is the least expensive way to purchase a substantial death benefit on a coverage amount per premium dollar basis over a specific period of time.
Whole Life insurance
A whole life insurance policy covers you for your entire life, not just for a specific period such as term insurance. Your death benefit and premium in most cases will remain the same. Whole life insurance also builds cash value, which is a return on a portion of your premiums that the insurance company invests. Your cash value is tax-deferred until you withdraw it and you can borrow against it. This was the first type of “permanent” insurance introduced well over 100 years ago. The most common choices include traditional, interest-sensitive, and single-premium whole life insurance policies.
Fixed Index Universal Life insurance
Provides affordable, permanent protection with the potential for interest gains through crediting interest in your account based on broad indexes such as the S&P 500. So long as adequate amounts of premiums are paid, this type of policy is designed to last the entire life of the insured. Fixed indexed universal life is designed to build cash value within the policy. Properly structured, this type of policy can also be an added investment strategy for those looking for tax advantaged income.
Universal Life insurance
Allows you the flexibility to change the amount of life insurance you carry as your need for insurance changes. Like fixed indexed universal life, universal life is a major strategy for retirement savings, builds cash value and remains in full force for the insured’s lifetime – so long as adequate premiums are made. Unlike fixed indexed universal life, the crediting in your account is not based on any broad index performance.
Notes and Learn More:
*Policy loans will reduce the available cash value and death benefit and may cause the policy to lapse, or affect guarantees against lapse. Additional premium payments may be required to keep the policy in force. In the event of a lapse, outstanding policy loans in excess of unrecovered cost basis will be subject to ordinary income tax. Tax laws are subject to change and your clients should consult a tax professional. Guarantees are backed by the financial strength and claims-paying ability of the insurance company. Statements made are based on a general understanding of current federal income tax laws. Tax laws and interpretation of such laws by the Internal Revenue Service may change.
To learn more, contact us for a Retirement Analysis and to see if you have a need for any kind of insurance.