A Tax-Free Safety Net
There are many benefits of life insurance that make it a necessary part of any financial plan. No matter how you use it as part of your safety net, life insurance is affordable protection that gives your loved ones a benefit payout that is tax-free. It provides peace of mind for: protecting future plans like college and retirement for your beneficiaries; paying off debt like a mortgage, credit cards or student loans; estate and inheritance planning to leave something behind for children, grandchildren, or charities; and covering end of life expenses like funerals, which have an average cost of nearly $10,000.
Term life is considered the simplest, most accessible insurance policy. Term life lasts for a predetermined period of time, known as the term. When the term is up, the policy expires. If you die before the term is up, a set amount of money, known as the death benefit, is paid to your designated beneficiary. The death benefit can be paid out as a lump sum, a monthly payment, or an annuity. Most people elect to receive their death benefit as a lump sum.
Whole life insurance is considered to be a type of permanent life insurance because it does not expire. It has a death benefit but also a cash value, which is a tax-deferred savings account that is included in the policy. The cash value accrues interest at a predetermined fixed rate. Each month, a certain portion of your premium will go into the cash value of the policy, which offers a guaranteed rate of return (The exact amount that goes into savings is determined by your individual policy). The policy’s cash value grows over time.
Universal life has a cash value, just like a whole life insurance policy. Premiums paid go toward both the cash value and the death benefit. But there’s a twist: the policyholders of universal life policies can change the premium and death benefit amounts without getting a new policy. If your financial situation changes, the ability to make adjustments within your policy is appealing. This feature is one of the main attractions of a universal policy and comes at an added cost.
Most shoppers decide between term and whole life insurance. Term life is the right choice for a majority of people because it’s affordable and straightforward. However, whole life, with its cash value and permanent status, can be useful for final expense planning and people with complicated finances. We can help you decide which is the best option for you.