Posted On: June 12, 2017
Is Life Insurance Worth It?
When Life Insurance is More than Just an Insurance Policy
It’s true that life insurance is, first and foremost, an insurance policy. You pay premiums every month designed to cover the cost of keeping the policy in force, and in return, the insurance company pays a death benefit to your named beneficiary(ies) when you pass away. Death benefits are usually tax-free to the recipient and can be used by your beneficiaries to make up for the loss of your income, to pay your final expenses and debts , and to fund children's education costs .
When you take the step to purchase universal life insurance instead of a term life insurance policy your coverage becomes more than just an insurance policy. Your protection stays in force as long as you make premium payments and until the policy's maturity date. The premiums you pay not only cover the cost of insurance, but also fund a "cash value" account within your policy, which may further be credited with a fixed interest rate.
Benefits and Features of Cash Value Life Insurance
If you are considering buying a universal life or other permanent insurance policy and are intrigued by the savings component, it is important to understand how such policies work. In general, cash value life insurance policies have the following features:
- The money set aside as cash value usually accumulates tax free.
- The policy cash value is credited with a pre-determined guaranteed minimum interest rate, so your cash value grows even larger. Not to mention, the minimum interest rate is typically higher than what you could get from savings accounts or other fixed-return investments.
- You have the opportunity to tap into the cash value to take out loans, or withdraw from it, with no tax consequences. However, taking withdrawals or taking loans without paying them back can impact the "health" of your policy, meaning larger premiums may be required in the future to keep the policy in force.
- When you pass away, the cash value can be added to the death benefit that is paid to your loved ones. There are different types of cash value policies with different options, so be sure to ask your insurance professional whether this benefit applies to any policy you are considering purchasing.
- Cash value may be protected from creditors (this protection is state-specific, so check with an attorney if this is a concern for you).
Are Cash Value Policies For Me?
You should never buy life insurance for the sole purpose of having a savings account, because the cost of insurance does go up over time, based on mortality risk and policy expenses. However, as an added bonus, knowing that your policy is accumulating cash on the side - funds that you can access during an emergency - can give you and your family peace of mind.
The type of life insurance policy that is best for your particular situation will depend on a variety of factors, including why you need insurance coverage, your attained age and health, your financial picture, and your ability to fund the policy.
Get in touch with a Symmetry Financial Group insurance professional to review your insurance needs and goals and let us find policy options designed to meet your objectives - working within your budget. To get started, contact us today . Look through our Guide to Life Insurance to find out more about life insurance, and how a policy can help you.