Permanent Life Insurance Types
Introduction To Insurance
Life is very unpredictable. Anything can happen to anyone at anytime. If you have dependants and you have financial responsibilities towards them, then one must go for a good scheme of insurance which will help your dependants to lead a peaceful life without financial crisis after the loss of their beloved one. It is a thoughtful business concept which is basically made to help the dependants and specially planned to protect the financial value of a human life. Insurance comes of great help during sudden injury, critical illness, post retirement, children’s education, marriage etc.
Life insurance is a contract wherein you enter into a contract with the life insurance company that in case of death, your nominated beneficiary will receive the predetermined amount during the term of the contract. The person who has taken the insurance policy is called the policy holder and the insurance company is called the Insurer. The insurance document is called the Insurance policy and the charge which we pay for these transactions are called premium. For different kinds of policy there are different kinds of premium, and added benefits other than the death benefits. The cost of the policy depends on the type of the policy, the term for which you have entered into a contract with the insurance company, and the amount you have assured plus your age. So it is essential to know the different types of permanent life insurance.
Types Of Permanent Insurance
The Universal Life Insurance is one kind of permanent life insurance which provides additional benefits, protection and access to cash values which grow tax rescheduling at competitive interest rates. This Universal Life Insurance has flexible protection and flexible premium one can choose the amount of the insurance as it suits you. In between your term one can increase or decrease the coverage within a limit but not less than the required minimum fixed in the plan. For decreasing the coverage one is supposed to pay a surrender charge which is applicable against the policy’s cash value. The premium can be increased or it can be paid in lump sum subject to the limits prescribed in the policy. The extra amount grows the tax deferred and automatically it increases the cash as well as the death benefits.
Advantages Over Other Types Of Insurance
The special advantage over the whole life insurance is that in the universal life insurance, the interest accumulated in the savings can be adjusted for the payment of the premium. The policy owner has got the facility to shift the money between the saving component and the insurance of the policy. In case of emergency or temporary financial crisis of the policy holder, one can pay lesser premium and the balance of the amount can be adjusted with the accumulated cash value. Death benefit is free from probate cost and the beneficiary will be protected from creditors in case of bankruptcy. Universal life insurance is very helpful in estate planning.
The universal life policy should be in force for fifteen years then only it will be eligible for any return on the policy. The insurance amount is guaranteed for its life time.
2. Whole Life Insurance
Whole life insurance, the name itself indicates that the insurance is covered for the lifetime of the policy holder provided he/she pays the prescribed premium regularly, then only they will be entitled to get the death benefits. In a whole life insurance policy the premium, the cash value and the death benefit are fully guaranteed. The other advantage is that the policy holder can take a loan against the cash value of the policy or he/she can receive the cash value in cash. In case you already have taken a loan the balance of the amount minus the interest can be received as cash value in order to surrender the policy.
The cash value in your insurance is your money but still you can’t withdraw it as how you withdraw money in your savings account. The access for your cash value is limited. There are two options, the first is to surrender the policy and take the cash value, the second is take money you need from your cash value as a loan against the policy. If the loan is outstanding at your death, then the beneficiaries will get lesser death benefit. Loans against the value of the insurance policy are not taxable and it will be of help in unexpected expenses.
In addition to the above benefits, the policy holders also get dividends, which one can use to reduce the premium, or enhance the death benefit, or increase the cash value. The policy loans reduce the death benefit as interest has to be paid on the loan.
Variable life insurance is a form of whole life insurance. On the death of the policy holder the beneficiary is fully protected to receive the death benefits. This insurance is a costly insurance as you can allot a portion of your premium money in different investment plans which the insurance company is having in the name of shares, stocks, bonds, equity funds, or market funds. Since these investment plans are prone to risk the variable life insurance policy is governed by the Federal Securities law, so the shares, stocks etc are sold with a prospectus.
The major advantage is that the earnings are never taxed when you are participating in the investment plans of the insurance company unless you surrender your policy. In case you earn more earnings in the form of interest earned in your investment, then, there is a provision in which a part of it can be adjusted with the premium you pay and the policy holder can adjust his death benefit. The cash value cannot be withdrawn during the life time in case of the invested fund performs poorly. Sometimes less money will be available to pay the premium, but you have to pay the premium to keep the policy in tact. The rule is whether you are doing well or not, the cash value cannot be withdrawn during your life time. Another advantage for the wealthy people is that they have to pay estate tax so they give a portion of the money to deposit it in Variable life insurance for their child which is tax exempted. The Internal Revenue Code sets the limits for the cash value as well as the premium.
However, there are certain risks involved in the variable life insurance. There is no flexible premium in this category. The investments are made on bonds, stocks and mutual funds which are highly risky. Since the cash value fluctuates every month so is the case of your death benefit. Only 70% to 80% of the cash value can be taken as loans.
Whatever may be the kind of policy you have taken it assures permanent protection and a life long peace of mind. On the other hand it also gives various options to grow your cash value and tax deferments. Your tax can be saved twice. For the first time, your tax is saved when you pay the premium and the second time when you receive maturity benefits. Little drops of water make a mighty ocean, so little money saved is equivalent to big money earned. Go ahead and enroll in any of the insurance schemes which suit you the best.