3 Reasons To Consider Permanent Life Insurance

Posted on: 7 November 2014

Permanent insurance may not be for everyone—the decision to purchase whole over term insurance is one that is based on personal budget, long-term financial goals, age and coverage needs. If it's determined that term is best for you and your family, then purchase a term policy.

The most important thing to remember when purchasing any life insurance policy is that you are getting adequate coverage to protect your family in the unfortunate event of your death, but here are several key reasons to strongly consider going with a permanent policy instead.

Who needs whole life insurance?

Whole life insurance has long since been fighting a bad rap for being a waste of money. You may often hear the phrase "buy term, invest the difference" that is preached by financial advisors who are against the concept of whole life insurance. In reality, whole life insurance, also known as permanent insurance, can be a great addition to your overall financial picture:

Whole life insurance is consistent in ways that term insurance is not.

Premiums: While permanent insurance can be considerably more costly, you can be assured that the premiums will always be what you signed on for. Term insurance premiums often increase as you age; premiums can become quite costly the older you get.

Coverage: As long as you are paying premiums, you will have coverage for life with permanent insurance. Some whole life policies are designed to require premiums paid only until the age of 65 with coverage until death, but if you want permanent coverage for a lower cost, you can get a policy where you pay premiums for life. Term policies are exactly what the name implies, they are only for a specified term depending on the policy. Some are for 10 or 20 years while others only cover you until the age of 80.

Whole life insurance can be a good addition to an investment portfolio.

Everyone has heard you shouldn't keep all your eggs in one basket. Adding a whole life insurance policy into your portfolio not only provides a guaranteed death benefit but can also be a great investment tool for several reasons:

  1. It's a safe way to accumulate cash value: Unlike a mutual fund, the cash value in a life insurance policy is not subject to changes in the market. There are variable life insurance policies that might, but this article is only referring to fixed permanent life insurance policies.
  2. Interest and dividends received are not taxable each given year: With many investment accounts, you have to pay taxes on the gains each year. Permanent life policies are tax-sheltered so you do not have to pay taxes on the gains each year; should you ever surrender the cash value you will have to pay taxes on all gains beyond the cost basis. It is important to realize that the gains from a whole life insurance policy are not completely free from taxation.
  3. Cash value is easily accessible: As soon as a policy has accumulated cash value you are able to use the money for major purchases, for emergencies, college tuition, etc. The best way is to borrow against the policy and pay the money back, but you can also surrender the cash additions. The latter is not recommended, however, due to the fact that it will be considered and taxed as income. There is typically a small interest rate to borrow against a permanent policy, but that is in order to keep the cash value accumulating at a rate consistent with value as if you hadn't borrowed against it.
  4. Cash value can contribute to annual income during retirement: A permanent policy can be used as a tool for retirement. Most companies will set up cash value surrenders automatically for those who want to use the cash value as consistent retirement income.

Build a legacy.

Many people want to leave a legacy to their children or grandchildren. A whole life insurance policy is a great way to be remembered (although hopefully not the only reason). One way to do that is just with the death benefit; the death benefit amount in a permanent life insurance policy on yourself will someday go to the benefit of your named beneficiaries.

However, you can also build a legacy by purchasing small policies insuring your children and grandchildren when they are babies. As the cash value accumulates as they grow into adulthood, the insured on the policy will have a nice sized cash value that can be used to help pay for college, a down payment on a house, etc. It is a good way to begin an investment portfolio for your children and grandchildren and start their road into adulthood on a good foot financially.

Permanent life insurance can be a good addition to your overall financial picture. There are many positive aspects to purchasing whole life instead of a term policy. The most important thing is to ensure that your loved ones are protected in the event of your death. For more help, try contacting a company like Advantage Insurance Agency, Inc. with any questions or concerns you might have.

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