Life Insurance Is More Than Just A Death Benefit
Americans have been through economic challenges during the last several years. Some withdraw funds from their 401(k) accounts to pay for rising costs of living while others max out credit cards. However, many people fail to consider their life insurance policies and their investment benefits.
When it comes to life insurance, the two main types are permanent and term. A permanent policy comes with investment opportunities, and it blends the investment component with the death benefit to yield a higher cash value accrual over time. Term life policies only pay when the insured dies before the chosen term. For example, a person who chose a term of 30 years and died after 20 years would be covered, and a person with the same term who lived 40 years would not be covered. Several permanent policies come with options for accessing cash immediately when necessary.
Permanent Life Insurance Choices
As long as the policyholder pays the premium, the permanent life insurance policy stays in place. It has a cash value that increases as time passes, and the policyholder can borrow against the value. These are the main forms of permanent life coverage:
- Whole life insurance comes with a fixed premium, a guaranteed death benefit and a guaranteed annual cash value but lacks investment flexibility or coverage changes.
- Variable life insurance lets policyholders allocate funds from bonds, stocks and money market accounts with varying risk and growth levels, and there is no minimum cash value guarantee or minimal market risk.
- Universal life insurance lets the policyholder choose the timing and amount for payments, comes with a guaranteed growth for cash value and does not offer investment flexibility.
- Variable universal life insurance combines universal and variable policy provisions to offer the most flexibility, provide investment opportunities in several markets of choice and allow tax-free investment transfers in some instances.
Anyone who is considering permanent life insurance should speak with a knowledgeable investment or tax adviser for help in choosing an ideal policy for his or her unique needs. From investment risks to premiums, there are many issues to consider.
Life Insurance Premiums
The premium is determined by the age at which a person buys a policy as life insurance is more expensive for older individuals. Health also affects the cost. A person with a chronic illness would pay more than a person with no history of health issues and so some companies ask for urine and blood samples in addition to accessing past medical records. While some companies will not insure people with cancer, diabetes and other serious chronic illnesses, others will simply charge more for placing them in a high-risk category. Smoking or drinking problems within the past five years can negatively affect the premium, and dangerous hobbies such as sky diving raise costs. Driving records, geographical location and occupation are also considered.
It helps to compare costs of different types of permanent life insurance before choosing a policy. To learn more about this type of life coverage, speak to us.
