Permanent Life Insurance

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Life Insurance Policies and Cash Value

Cash value is an attractive part of many permanent life insurance policies. When the cash value inside a life insurance policy builds up, you may take a loan or a withdrawal from the cash value, subject to provisions of the life policy, that can help you with expenses.

Only permanent life insurance policies can build cash value, so that means if you are looking for a life policy to build cash value, you may want to investigate whole life or universal life policies.

Whole Life policies allow you to have a cash value that builds slowly but steadily as long as you pay your premiums on time. As the cash value increases, you’ll see it grow too – so it pays to be patient!

Universal life policies also build cash value, but they do so in a little more complicated way. The value inside of a universal life policy is usually not guaranteed, which means you may receive more cash value than expected – or you may get none at all.

If you want a life insurance policy that may build cash value that you can access while protecting your family, talk to us about overfunding – paying slightly more than the normal premium in order to increase your cash value. Just like a whole life policy, the larger the cash value gets the faster it grows. So, taking advantage of the flexibility of a UL plan by overfunding means you may receive more cash value!

How Whole Life Insurance Works

The general concept of life insurance is simple. You and an insurance company enter a contract where the insurer, in exchange for a premium, guarantees a specified payment to your beneficiaries in the event you pass away while the life insurance contract is in place.

Whole life insurance policies are contracts providing a fixed amount of benefit for your entire life. So long as you pay your premiums, your beneficiaries will receive the death benefit purchased whether you live another 10 years or well past the age of 100. This differs from the more know term life insurance policy which only provides coverage for a limited time, such as 10 or 20 years.

Like term life insurance, whole life insurance premiums are fixed and are used to pay for insurance and administrative costs. But a whole life insurance premium has a third element – tax deferred savings. This third component is used to build up cash value within the policy.

The cash value serves a valuable purpose. When you are young, the cost of insurance is extremely low. However, as we age, the cost of insurance increases exponentially. To keep whole life insurance premiums level for an entire lifetime, the cash value saved over time will be used to offset the high insurance cost later in life. In effect, the additional premium paid for a whole life insurance policy, in comparison to term life insurance, is used to pre-pay the higher cost of insuring us as we get older.

Whole life insurance is a form of permanent insurance and often confused with a similar, but markedly different product. Universal life insurance is also a form of permanent life insurance but is usually offered with lower premiums. While universal life has its own benefits, it is important to note whole life is the only form of life insurance that:

  • Is designed to build cash value.
  • You can borrow against the cash value.
  • Will be fully paid up at a pre-determined and fixed age.
  • Guaranteed not to lapse if you make your premium payments.
  • The policy’s interest payments can be added to the death benefit.

Whole life insurance has many benefits over its term and universal life cousins. But this product isn’t for everyone. To learn more about whether a whole life insurance policy might be right for your financial needs, contact my office today. 

What is Universal Life Insurance?

Universal life insurance is a form of permanent life insurance offering the low-cost protection of term life insurance as well as a savings element (like whole life insurance) which is invested to provide a cash value buildup. The death benefit, savings element and premiums can be reviewed and altered you as your circumstances change. In addition, unlike whole life insurance, universal life insurance allows you to use the interest from your accumulated savings to help pay premiums.

Premiums, which are variable, are broken down by the insurance company into insurance and savings, allowing you to make adjustments based on your circumstances. For example, if the savings portion is earning a low return, it can be used instead of external funds to pay the premiums. Unlike whole life insurance, universal life allows the cash value of investments to grow at a variable rate that is adjusted monthly.

Why You May Want to Consider Burial Insurance and Final Expense Insurance

People who have lost a member of their family know how difficult loss can be. The emotions are overwhelming. However, often, there isn’t time to grieve because you need to quickly begin to deal with the financial implications.

The cost of a funeral can add up quickly. The last thing you or your family need is to worry about is if you will be able to cover the funeral expenses. That is why planning ahead is critical.

Burial insurance or final expense insurance is a basic life insurance policy that typically covers people until they reach the age 100. It is an easy insurance to obtain, much simpler than complicated whole life or term policies. Depending on the policy, burial insurance or final expense insurance helps your family cover the expenses of a funeral and potentially other outstanding expenses.

Besides a sense of comfort that a final expense insurance policy can offer, it offers never changing premiums and permanent coverage making it a wise decision for your future.

Expensive funerals
Funeral costs can add up, especially if you consider the:

  • Funeral service
  • Cemetery plot and headstone
  • Cost of casket
  • Funeral procession

Miscellaneous costs
These costs can quickly add up, making burial insurance a smart and pre-emptive decision. Don’t make your loved ones worry about costs when the only thing they should worry about is grieving.

Call today to learn about burial insurance or final expense insurance policy so your family doesn’t have to worry about it tomorrow.

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