A Spotlight on Permanent Life Insurance
Permanent life insurance is actually a generic term for different types of life insurance policies that have no expiration date, unlike term life insurance that is pegged to a fixed period. Permanent life is a combination of a life insurance and an investment plan. The savings component builds up a cash value where the insured can withdraw money from. The policyholder can withdraw funds from this policy to fulfill future expenses like their child’s college tuition. There are two main types of permanent life insurance, namely universal life and whole life.
To be able to withdraw funds from the savings component of the policy, the insured would have to wait out a fixed period after purchasing their plan. This allows the policy to earn sufficient cash first. Your insurer will terminate your permanent life policy if the value of what you borrowed including interest exceeds the cash value of your policy.
Permanent life policies benefit from a lenient tax treatment. Tax is generally deferred so that the insured does not really pay taxes on their policy as long as it is active. Under certain premium conditions, the insured can borrow money from the policy tax free. Policy loans are generally not viewed as taxable income. It may be possible to withdraw the entire value of premiums paid without paying for taxes.
Is it More Than You Need?
Many are of the opinion that permanent life insurance plans provides more coverage than what an average person really needs. But this type of insurance can protect your family’s financial stability throughout your entire lifetime, plus it has a savings component that you can borrow from. On the other hand a basic term insurance offers protection for a fixed time period at the end of which, the insured will get nothing. It works on the assumption that by the time the policy terminates, the insured will have secured the family’s finances. This means that the term life policy have fulfilled its job.
When Do Permanent Life Plans Work?
The savings component of permanent life plans will not be taxed until you withdraw it. You can however avoid taxation if you borrow against your policy. This policy is ideal for people earning high salaries who typically max out their other tax-deferred funds. These plans will also be a good fit for older policy holders who own illiquid estates but would like to pass money on to their children.
Under permanent life insurance, the subtypes are universal, whole, and variable plans. A whole life plan comes with a fixed premium with a guaranteed growth. A universal plan will let the policyholder either increase or decrease their premiums. A variable policy will allow the insured to decide how the savings component of the policy will be invested. Once you have decided on buying a permanent plan, you can find experts who can assist you with the details of your plan. There are insurance experts that charge by the hour.
It could take ten years or more before your permanent life plan’s cash value reaches the level of the premiums you have paid. At this point, you can start borrowing from the savings component of your policy. If you surrender your plan during the early years, you might be asked to pay surrender charges.
Is it a Must?
Life insurance can be a potent tool in your personal financial situation because of its flexibility and the many options it offers. At the very least your life insurance can pay for a host of expenses including funeral costs, mortgage payments, tuition fees, personal debts, and others. You can give your family a higher sense of financial stability with your life insurance policy.
With your life insurance policy your dependents will have the funds to replace your income when you depart from life. It is important to understand the entire process involved in acquiring life insurance, particularly the part where you determine the coverage you can get with the budget you have. You can educate yourself by consulting with an insurance agent or you can do your own research online as there are web sites that offer free advice on purchasing life insurance. When trying to determine the amount of coverage you need, you should assess how much money your beneficiaries will require after you are gone. You should also consider factors like your wife’s financial status, your age and financial status, plus the ages of all your dependents.