Life Insurance is for
the LIVING: Build your assets while protecting your family
folks think of life insurance as just something you get so your
family will be able to bury you and pay off the bills if you should
die before they do. This perception of whole life could not be more
Simply explained, whole
life insurance is an inexpensive way to build your estate, protect
your family while you are young, and have something for yourself
when you reach retirement. Unlike playing the stock market or attempting
the lottery, you can't lose your investment.
What is it, and what
are the advantages?
for Your Family
Your best option is to purchase "guaranteed" whole life.
The guarantee simply means that your benefit will never go down
and your premium will never go up. That is, it is guaranteed level
both in cost and coverage. So, if you die leaving a family and bills,
your loved ones are always protected with your initial benefit.
In addition to the basic
death benefit, your whole life policy can have a wide variety of
options from spouse or children's term riders, to disability waiver
of premium, to additional indemnity for accidental death, and even
unemployment waiver of premium. The available options depend on
the company. Most of the riders drop off at various times, which
will lower your premium at that time. Thus you won't ever be paying
for coverage you don't have.
Whole life insurance builds cash value. Unlike term insurance, cash
value means that if you surrendered the policy back to the company,
they would pay you the cash value. Of course, if the policy is at
least partially for final expenses, you won't want to do that. However,
that cash value can be used in other ways. First, it increases the
value of your estate without increasing your taxes. Secondly, it
gives you a source for loans in the event of an emergency. You really
don't even have to pay back the loan as long as you pay the interest
each year so it doesn't eat into your cash value.
Finally, the government
allows you to make a transaction called a "1035 exchange"
with a life insurance policy that has cash value. A 1035 exchange
is simply rolling the cash of the policy into a fixed annuity product.
The annuity will not require any additional premium, but will instead
gain yearly compounded interest that will allow your money to grow
with no further contribution from you. If you need some cash, you
can take it out of your annuity without borrowing. It is your money.
If you need a continuous stream of income added to your social security
to live on, you can take an "immediate annuity" meaning the principle
will be surrendered for a monthly income that you cannot outlive.
You or your beneficiary will always get more than the amount of
money you surrendered. Finally, if you do not need to take money
out of the annuity, it will go to your beneficiary upon your death
without first going through probate. Although there may be a small
amount of tax on the interest gained as an annuity, the proceeds
will provide a death benefit for final expenses and a legacy for
your heirs as well.
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