Life Insurance As An Investment
There are two basic types of life insurance: term and investment. Term life insurance is also called pure life insurance, and it provides a death benefit but has no cash value. Investment life insurance policies provide a death benefit, but they also combine life insurance with an investment vehicle which builds cash value in the policy, allowing policyholders to receive a return on their premiums. The individual’s needs and preferences will determine which coverage offers the best value for them.
Whole Life Insurance
Whole life insurance is a permanent life insurance policy which builds up a cash value over the term of the policy. The death benefit remains in force after the policy matures, but policyholders have the option of canceling the policy and redeeming the cash value, or leaving the policy in effect and borrowing against the value. Whole life insurance is typically invested in conservative financial instruments such as bonds, which offer a steady rate of return but lower risk, which allows some policies to offer a specific, guaranteed rate of return.
Universal Life Insurance
Universal life insurance also has a cash value, and the amount of money invested correlates with the amount of premium paid. Unlike whole life insurance, universal policies do not have a fixed monthly payment; they have minimum rates. Money paid over the minimum premium is invested and diverted to the cash value of the policy. The policyholder may withdraw cash from the policy or borrow against the cash value, but money withdrawn from a life insurance policy is subject to income tax, often at a high rate, as well as possible penalties assessed by the life insurance company.
Variable Life Insurance
While whole and universal life are primarily life insurance policies with a conservative investment return, variable life insurance has a more aggressive investment strategy which presents greater risk to the investor. It also presents the potential for greater returns on investment. While variable insurance has a death benefit it also allows the policyholder the freedom to determine how his money will be invested and it is as much an investment vehicle as an insurance policy. The kinds of investment options include money markets and securities futures, which have higher yield but higher risk.
Best Life Insurance
Both whole life and universal life policies offer a low-risk conservative return on investment. These policies are best suited to individuals who prefer to take minimal investment risks and who are willing to settle for a lower return. Although variable life policies offer greater investment risks, they are good for individuals who are willing to take higher risks for higher returns and who have enough financial knowledge to make good investment decisions. Also, variable life might be better for those who are already financially well-off and can afford to risk more.
Investment Advantages of Permanent Life Insurance
Permanent life insurance policies are a good financial tool for estate planning. The investment returns on life insurance policies are tax deferred, so no income taxes are due until cash value is withdrawn from the policy (read more about life insurance taxes). Life insurance should be purchased directly from the life insurance carrier if possible since agent commissions can eat into potential investment returns. For many people, permanent life insurance is a good retirement investment since it is an easy, low risk and affordable method of saving.
Permanent Life Insurance Quote
Choosing the proper life insurance type is very important, not just to your financial future but to that of your loved ones, for whom you would want to provide in the event of your passing. To compare life insurance rates on different types of life insurance, simply enter your 5-digit zip code in the box provided above and TheLifeInsuranceQuote.com will provide you with free online life insurance quotes.
The Life Insurance Quote offers consumers the chance to instantly compare multiple life insurance quotes from the best life insurance companies in the U.S., ultimately helping you find and buy the best, affordable policy for your needs.
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