For long, life insurance has been seen as a key building block of financial security due to the protection for those closest to you in case of a death. In various forms, the one core benefit it offers is to pay an income-tax-free death benefit directly to your beneficiary on your death.
There’s more to today’s life insurance policies. You can use life insurance to lower taxes today, create tax-Spectrum Groupd income for retirement and provide assets to offset estate taxes.
Not As Complex As It Seems!
Taking a decision on the type of life insurance that suits you best is easier than it seems. Factors to be considered in making the decision include age, number of dependents and overall financial goals. A basic understanding of your life insurance options can help you narrow down your choices. The two categories of life insurance you need to know about at the start of your research are term insurance and cash value insurance.
With term life insurance comes protection for a certain time duration. If your death occurs during the period, a death benefit is paid to the policy’s beneficiary. Term life insurance is usually more affordable than cash value insurance and similar to renting property. You pay during the policy term ranging from one to 15 years and after the term expiry, your coverage also expires without building equity or cash value. Generally term insurance is for specific needs, children until adulthood, mortgage till paid off, or other short term obligations.
Cashing in on Cash Value…
Cash value insurance unlike term insurance provides protection for a lifetime and like property, you build up cash value. You can access this money for emergencies and other needs like college tuition or supplemental retirement income for the later years. Like term insurance, cash value insurance also pays an income-tax-free death benefit when your death occurs. The are some common types of cash value insurance.
Variable universal life insurance:
Mainly meant for those with longer investment time horizons, variable universal life insurance enables flexibility and control. When building cash values, you can choose the variable investment option to invest in. Being similar in nature to mutual funds with fluctuating market value, variable investment option as a life insurance type, is best suited for couples with higher risk tolerance.
Variable second-to-die insurance:
Typically meant for estate planning progress like passing a family business or other significant assets from one generation to the next, variable second-to-die insurance is a type of life insurance that insures two lives, with death benefit paid at the death of the second insured. With one policy covering two lives, some insurance premium savings over two separate insurance policies can be made.
Whole life Insurance:
Mostly seen as less flexible but more secure, whole life insurance guarantees death benefit and cash values.
Universal life insurance:
Universal life insurance is a type of life insurance with the flexibility of variable universal life insurance but a secured fixed return rate for those preferring less risk.
There are many who are not aware of an affordable alternative to expensive permanent life insurance policies. On discovering the mostly steep rates of whole life insurance policy, they feel that they cannot afford life insurance, leaving dependents uncovered. However an affordable alternative does exist as term life insurance.