Life Insurance Can be Used as Protection and Financial Planning
Life Insurance is usually thought of as one of the best ways people can provide for their loved ones in the case of their demise, and subsequent loss of family income. Life insurance generally comes in 2 forms, term and Universal.
In term life insurance, the policy covers the insured fro a period or term of time, perhaps 30 years. In the case of the insured's death, the beneficiary is paid a fixed predetermined amount of money. It is the simplest and least expensive form of life insurance. It is purchased by those who just want to provide for their family in case of their death.
There are several forms of permanent life insurance, including Whole Life, Universal Life, and Variable Universal Life, which are really forms of financial planning. Whole Life insurance provides both protection and a cash value. The premiums remain at a fixed level for the duration of the contract and the policy builds up cash value on a tax-deferred basis.
Life insurance should not be purchased solely for cash-value accumulation; a CD is better for that purpose. Life insurance is primarily bought to provide protection. Universal Life Insurance is a flexible life insurance plan that permits you to adjust the death benefit and/or premium payments, within limits, to fit your situation. The net premium payments are applied to an interest earning accumulation fund. The monthly cost of the death benefit and policy administration is deducted from the accumulation fund. As with Whole Life Insurance, the cash value may be withdrawn it or borrowed against. The cash value can be applied to the premium. Universal life rates are subject to change, but the rate will never fall below the minimum rate guaranteed in the contract.
Variable Universal Life Insurance may be the correct option for you if you want to invest the cash value of your life insurance policy in various funding options that, in turn, invest in such things as stocks and bonds. The policy holder decides how the net policy values are to be invested. This may sound good but remember there is an accompanying investment risk, just like any other stock market investment. If market performance is poor, the death benefit may decrease, and higher premiums will have to be paid to keep the policy in effect. However the cash value also has the potential to grow more rapidly than with other cash-value policies if the market performs well. Like Universal Life Insurance, above, premiums and death benefits are adjustable within limits.
by Sally.Anderson 19 years ago