A Closer Look at Life Insurance
While it may be considered an uncomfortable subject to discuss, eventually we all are scheduled to face the big man in the dark cloak carrying the scythe. Life insurance has the unique quality that on a long enough timeline, every policyholder will eventually qualify for a payout.
If you don’t yet have a policy in place, consider this: death comes for us all at some point. So life insurance is one kind of insurance policy that stands apart from others, in that the policyholder has a certain need for the benefits sooner or later.
Three out of five people own some type of life insurance, and another 34% report a likelihood of making a purchase within the coming year.
There are many types of life insurance policies available. The bottom line is that life insurance protection is important. It may be time to consult an insurance professional who can help you assess your life insurance needs and offer information about the various types of policies available.
The two types of life insurance are term life and whole life. Term policies provide life insurance protection for a specific period of time. If you were to pass away during the coverage period, (usually 10, 20, or 30 years) your beneficiary receives the policy's death benefit. This is commonly a lower cost option, but it carries with it a specified time period. After the time period expires, you have the option to renew but commonly at a higher cost.
Whole life can carry higher premiums but provides coverage to age 121. Premium payments end at age 100. As the name implies, whole life insurance is designed to protect you for your entire life. Premiums are significantly higher than term life policies, not only to compensate for the higher mortality risk in your later years, but also because whole life policies accumulate cash value over time.
Many different types of cash value life insurance are available, and with so many types, you're sure to find a policy that meets your needs and your budget.
Death and Taxes
Life insurance policies offer several prime tax advantages. In most cases, the money the beneficiary receives is free of income tax.
Permanent life (cash value) policies offer two additional tax benefits:
* Tax-free buildup. Inside the cash value, investment income might be generated. As long as cash stays inside the policy, that income usually won’t be subject to income tax.
* Tax-free payouts. Policy withdrawals are not taxable up to the total amount paid in premiums. In addition, loans also might not be taxable, as long as they are taken in moderation.
However, taking withdrawals and loans may reduce the policy’s cash value and death benefit. If you accumulate too many loans and withdrawals, the policy can lapse and trigger an income tax obligation. Guaranteed cash value life insurance may be a source of funds to supplement your retirement.
IMPORTANT DISCLOSURES
Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates, Inc. This material does not constitute an offer or recommendation to buy or sell securities and should not be considered in connection with the purchase or sale of securities.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable– we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.
David Lerner Associates does not provide tax or legal advice. The information presented here is not specific to any individual's personal circumstances. Member FINRA & SIPC