Like it or not, every single one of us has an appointment with the Reaper. That is to say that death comes for us all at some point. It’s unavoidable.
That’s a blunt way of looking at it, but it is still a truth that shouldn’t be overlooked. And in preparation for that inevitable day, life insurance is something that stands apart from other kinds of insurance. The reason being that if you have a health insurance policy, and never get sick or never have to visit the hospital, then you’ll never need the benefits. Or if you have a car insurance policy and never get in an accident, well then you’ll never need to claim any benefits there either. But with life insurance, 100 percent of policyholders will eventually qualify for a payout; every single 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 percent 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 will last your entire life. 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 of life insurance available, you're sure to find a policy that meets your needs and your budget.
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 they are taken in moderation.
However, taking withdrawals and loans may reduce the policy’s cash value and death benefit. If you overdo loans and withdrawals, the policy can lapse and trigger an income tax obligation. Therefore, a cash value life insurance may be a source of funds, tax-free, but distributions should be taken with care.
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.