Are you considering the purchase of a life insurance policy? Perhaps to provide protection for your spouse, children or other loved ones? Or possibly to support your estate planning and business planning goals?
Life insurance can be a powerful financial tool. If you have dependents, they can use your life insurance death benefit to overcome financial challenges in the aftermath of your death. You could leave a life insurance benefit to loved ones to help them fund their education or reach other major goals.
Not all life insurance is the same, though. There are many different types of insurance, but most fall into one of two categories: term or permanent. Term insurance is coverage that lasts for a limited period of time, like 10 or 20 years. When the period is over, you can renew the coverage or simply let it lapse. Term insurance is popular because it’s usually affordable compared with similar permanent coverage.
However, affordability shouldn’t be your only consideration. While permanent insurance may come with higher premiums, it also has different features and benefits that usually aren’t available with term policies. Below are three questions to ask yourself to determine whether or not you need permanent insurance:
Do you need life insurance protection for the rest of your life?
As the name suggests, permanent coverage is meant to provide lifelong protection. Most policies are designed to last until age 100. If you live to 100, the cash value in the policy is simply paid out to you. However, as long as you pay the premiums, the policy will stay in force up to that point.
Some people need life insurance protection for only a limited period, such as when they have minor children in the home. However, others need permanent protection. Perhaps you want to leave a benefit for your spouse, no matter your age when you pass away. Maybe you want to leave a benefit for grandchildren or a favorite charity.
Permanent life insurance is an effective way to achieve those goals. With a permanent policy, you go through underwriting only at the time you purchase the policy. So even if your health worsens as you age, your policy stays in force. If you use a term policy and let it lapse, you would likely have to go through underwriting if you wanted insurance again later in life.
Do you want tax-deferred accumulation potential?
A key difference between term insurance and permanent insurance is the accumulation of cash inside the policy. Permanent policies have a cash value account. A portion of your premium goes into this account. It then grows—through policy dividends, interest payments or investment gains. The method for growth depends on the type of policy.
Growth inside a permanent policy is tax-deferred. That means you don’t pay taxes on the growth until after you take a distribution from the policy. That deferral could help your funds accumulate at a faster rate than they would in a taxable account.
Are you looking for a possible tax-efficient income source?
What do you do with the cash value in a permanent policy? You can let it continue to accumulate, or you can take it out to fund college, retirement or any other goal.
You can take the funds as withdrawals, which may generate tax consequences. But you can also take the loan distributions. Under this arrangement, you borrow the funds tax-free from the policy, and then repay it over time. If you fail to repay the loan before you pass away, the balance is simply deducted from the death benefit.
Ready to develop your life insurance protection strategy? Let’s talk about it. Contact us today at Gregory Financial Group. We can help you analyze your needs and create a plan. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
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