What are the pros and cons of whole life insurance and other types of insurance policies
Permanent Life insurance can be described as some of the following insurance products; You can use whole insurance policy, universal life insurance policy, or variable life insurance policies. When picking an insurance policy you need to match the policy to your purposes or needs. The purpose of Life insurance policies will fill one or two basic needs. The first need will be to establish an instant estate for your surviving spouse, and family. The amount of the insurance policy should cover the following; your basic household monthly budget expenses, medical coverage, your child’s education cost, and any big ticket items like the purchase of an auto.
What is not permanent life insurance , is called term life policies. The purpose of term life policies is to provide that instant estate, at the lowest premium payments. There is no cash value build up. Your policy will cover either a 10, 15, 20, or 30 year term period. Your premium payments will increase the longer that you hold that policy.
The second purpose of life insurance is to resolve cash flow issues that will arise from the death of the policy holder.
For business or small business owners an area of concern would be the continuation of their business. Life insurance can also be used for the purpose of estate planning. You can use the proceeds from your insurance policy to pay for estate taxes. Life insurance can also prevent the sale of valuable assets to pay those estate taxes.
A major benefit for life insurance is that the proceeds from that policy will pass on the beneficiary tax free. However, those proceeds and policy value will be included in the decedents estate and taxed Accordingly. To avoid this from occurring a policy holder should consider holding the life insurance policies In a trust. One can consider using a (ILIT) Irrevocable Life Insurance Trust to accomplish this goal. You should always consult with a qualified legal attorney who specializes in estate planning.
A whole life insurance policy will provide you with the following advantages; it is a level premium payment for the entire life time of the policy holder. The policy holder will begin to build up a cash value on the policy. That cash value will accumulate tax free in a savings element. When you have enough of a cash balance built up you can borrow against the policy. The disadvantages of the whole life policy is That the premium payments are higher than the premium payments for Term life policies. The interest rate In the saving element is not fixed and is typically not disclosed by the insurance company.
Universal life insurance features the following benefits; The interest rate grows tax free and is set At the market rate. It features a flexible premium payment schedule. The benefits of the policy can be either Increased or decrease by the policy holder, that includes the face value of the policy itself.
Some of the disadvantages of Universal life are that the future yields are uncertain due to inflation. The premium payment is not competitive and your insurance coverage can be incomplete.
Variable life insurance policies can give a policy holder additional flexibility in managing their Investment selections.
The premium payment is a fixed premium payment. You can borrow against the cash balance that is built up in your policy. Your ability to exchange mutual funds are free and held in A tax free investment.
Your disadvantages are the cash value in your account is not guaranteed. This is An inherent risk to the policy holder. Both the death benefit and cash value can either increase or decrease.
Permanent life insurance is an insurance policy that will cover the entire lifetime of the policy Holder. The insurance premiums are fixed premium for the entire life of the policy holder. In deciding which insurance coverage is suitable to you; please consult with your professional financial planner, And tax adviser before you make your final decision.