Estate Planning – What About Life Insurance?


Estate Planning – What About Life Insurance?

Copyright 2006 Ronald Hudkins

Not too many years ago life insurance was considered to be the indispensable platform upon which all other estate planning efforts should be based. In fact, for those in the median and lower income ranges, it was often the only recognized method for protecting one’s heirs, particularly in the event of untimely death. However, over the past twenty or so years, the concept of financial planning has changed considerably. The proliferation of varied retirement plans available through work (IRAs, SEPs, SARSEPs, mutual funds, etc) has changed people’s perspectives about the need for life large life insurance policies.

Does that mean that you don’t need life insurance? No. Most people, perhaps with the exception of the very wealthy, do need some sort of life insurance, although even the very wealthy may opt for a life insurance policy (generally whole life) to defray the costs of burial and estate taxes.

In general, the options are whole life (also called permanent insurance) and term life, with variations like universal life or variable life that combine some of the benefits of each. Different companies offer different options, but which you need and how much you need are matters for heated debate. Those who sell one and make most of their commissions from it will vehemently try to convince you that the other is not a good investment. Here are some facts for your consideration.

Whole Life Insurance Advantages:
• Offers a guaranteed death benefit no matter how long you live
• Is generally not subject to rising premiums; rates stay the same
• Many policies become “paid up” at some point (15 years, age 65, etc.) after which no more premiums are paid
• Has investment value which can be cashed out after some specified interval
• Can be borrowed against in case of financial emergency
• Can, in many cases, occasionally earn dividends depending on the company’s solvency and accuracy in predicting actual costs
• The income from a whole life policy is tax deferred
• Can be cashed out after age 65 and used for retirement

Whole Life Insurance Disadvantages:
• Costs more than term life insurance
• Generally returns a fairly low rate of interest
• Does not begin to accumulate any real value for the first 10-15 years
• If the policy is surrendered within the first few years, money paid into it is lost
• Does not provide the investment value of a mutual fund or other investment

Term Life Advantages:
• Premiums are generally very inexpensive
• Lower premiums allow the buyer to purchase more insurance with higher death benefits
• Can be quite useful if the buyer only needs coverage for a specified period (while paying off the mortgage or while kids are in college, etc.)
• Leaves the buyer with more money to purchase other investment vehicles like mutual funds, stocks, bonds, etc. that provide higher rates of return than whole life
• Often beneficial for younger families who can’t afford whole life rates, but need to insure the primary income earner

Term Life Disadvantages:
• Only pays if and when you die; you can never personally recoup any of the money spent on term life insurance
• While premiums are lower than whole life, they also tend to go up and can become unaffordable
• Term life is only available for a specific term (up to 30 years), and then goes away; if you don’t die within the term, your premiums are lost

Almost everyone needs life insurance of one variety or the other. The type of insurance and the amount to purchase depend entirely upon you, your family and your mutual goals and needs. In any case, make sure the company you purchase insurance from is reputable and financially solvent. Don’t be convinced by a fast-talking sales person without doing your homework first. There are few remedies if your life insurance company dies before you do.

Definition of Whole Life Insurance

Whole life insurance, also known as “cash-value” insurance is a basic and consistent type of permanent life insurance which remains in effect your entire life at a level premium. This life insurance is a good choice got you if you do not expect your life insurance needs to diminish over time. A portion of your premium goes into a reserve fund called ‘cash value’ that builds up over the years your policy is in affect. Your reserve fund is tax-deferred and you can borrow against it, until you withdraw it.

The premiums must generally remain constant over the life of the policy and must be paid periodically according to the amount indicated in the policy. You may also have the option of a single premium — paying all of the premiums at once with a single lump sum. Your cash values will grow to equal the amount of the death benefit when you turn to age 100.

Although, whole life insurance is very expensive, and if you’re on a limited budget, you may not be able to afford all the insurance coverage you actually need. But the plus point is that the death

benefit is guaranteed as long as premiums are met. Also death benefit will never decrease if you don’t borrow against it.

Whole life insurance policy’s returns will fluctuate with the markets and will usually follow returns

available from other investments like equity mutual funds. However, if you decide to quit your policy, your cash value can be paid in cash or paid-up insurance.

Whole life insurance is most suitable for you, if you want to:

• use it as a tax and estate planning vehicle,
• accumulate cash value for a child’s education or retirement,
• pay final expenses,
• provide money for a favorite charity,
• fund a business buy/sell agreement,
• provide key person protection.

Before buying the whole life insurance, you need to think carefully about choosing your level of

coverage. Too often people make the mistake of insufficiently covering or even worse, financially

overextending themselves. This would be a tragic error with whole life insurance policy because

defaulting on premium payments can mean policy cancellation and the loss of your entire investment. So be careful and make sure you:

• pick a life insurance policy that has a guaranteed cash value starting at the very first year,
• choose the one with the highest cash value in the very first year,
• consider “participating” insurance policies which can pay dividends, increasing your policy’s value by boosting both the total cash value and the death benefits,
• beware of any insurance policy that levies “surrender charges” when you cancel.
• if you ever need to stop paying premiums, your policy lets you use the accumulated cash value of the life insurance policy to pay the premiums, thus keeping your coverage current.

Advantages Of Whole Life Insurance – How To Get Them

Whole Life Insurance is insurance that stays in place for the duration of your life. There are several advantages of whole life insurance that make it a preferred insurance choice for many people. The first is that whole life insurance accrues a cash value, which can be paid out upon death, or at a certain age. Whole life insurance is not just insurance, it is an investment which can be borrowed against, and as long as you keep up with the premiums, will st and the beneficiaries in good stead.

While whole life insurance may initially be more expensive than term life insurance, in the long run it can be less expensive. Whole life insurance is regarded as an investment, and as such, may pay dividends throughout the life of the policy. These dividends can be used to pay down the premiums, or in other nominated ways that can mean that you save money in the long haul.

Whole term life insurance policies can be paid out as a lump sum, or in monthly payments, so there is some flexible for policy holders who do not wish for their policy to be spent irresponsibly. There are also now a large range of various policies which allow customers to pick and choose conditions that suit them them best.

Due to the expansion of the insurance industry, you are well advised to look at your own needs and desires critically, to make sure that the package you end up signing for suits your needs best, and does not carry superfluous costs which will not benefit you at all.

If you are looking for whole term life insurance, be sure to look around various companies, and to request quotes online. These save you both time and money, and are well worth the effort when you consider the magnitude of the investment you could be making, and the importance of the cover to your loved ones.

Advantages of a Whole Life Insurance Policy

To begin with, you need to underst and that life insurance falls into two very broad categories: Whole and term. The basic difference between term and whole life insurance is this: A term policy is life coverage only.
In whole life insurance policy, as long as one continues to pay the premiums, the policy does not expire for a lifetime. As the term applies, whole life insurance provides coverage for the whole life or until the person reaches the age of 100. Whole life insurance policies build up a cash value (usually beginning after the first year). With whole life, you pay a fixed premium for life instead of the increasing premiums found on renewable term life insurance policies. In addition, whole life insurance has a cash value feature that is guaranteed. In term and whole-life, the full premium must be paid to keep the insurance.

With level premiums and the accumulation of cash values, whole life insurance is a good choice for long-range goals. Besides permanent lifetime insurance protection, Whole Life Insurance features a savings element that allows you to build cash value on a tax-deferred basis. The policyholder can cancel or surrender the whole life insurance policy at any time and receive the cash value. Some whole life insurance policies may generate cash values greater than the guaranteed amount, depending on interest crediting rates and how the market performs. The cash values of whole life insurance policies may be affected by a life insurance company’s future performance. Unlike whole life insurance policies, which have guaranteed cash values, the cash values of variable life insurance policies are not guaranteed. You have the right to borrow against the cash value of your whole life insurance policy on a loan basis. Supporters of whole life insurance say the cash value of a life insurance policy should compete well with other fixed income investments.

Unlike term life policies, whole life insurance provides a minimum guaranteed benefit at a premium that never changes. One of the most valuable benefits of a participating whole life insurance policy is the opportunity to earn dividends. The insurance company based on the overall return on its investments sets earnings on a whole life policy. In addition, while the interest paid on universal life insurance is often adjusted monthly, interest on a whole life policy is adjusted annually. Like many insurance products, whole life insurance has many policy options.

Make sure you can budget for whole life insurance for the long term and do not buy whole life insurance unless you can afford it. You should buy all the coverage you need now while you are younger, and if you cannot afford whole life insurance, at least get Term. That is why whole life insurance policies have the highest premiums it is insurance for your whole life, no matter when you pass on. The level premium and fixed death benefit make whole life insurance very attractive to some. Unlike some other types of permanent insurance, with whole life insurance, you may not decrease your premium payments.

Why I love whole life insurance

If you are looking into life insurance, you have two basic choices. You can choose term insurance or whole life insurance.

Term insurance offers cheaper premiums. With that in mind, why do I love whole life insurance? It may have something to do with the reason I love getting a big tax refund. You see, I know I could change my deductions and get more on each pay, but I kind of like getting that big tax refund. I pay a little more every payday but it pays off each April.

It is the same way with whole life insurance. I may pay more in monthly premiums, but there are two VERY big plusses for me. One is that whole life builds cash value, making it virtually a savings account for me. The other reason is that I know my premiums won’t ever rise. Those are two pretty good reasons. But there’s more.

I have a tough time saving money, so whole life has that built in feature. I pay the premiums and a portion goes into a cash value. It also allows me to access to my built up cash value via policy loans. If I ever need some extra cash on the cheap and don’t want to go to a bank, a whole life policy could be the ticket.

Yes, I’ve heard the expression “buy term insurance and invest the difference.” For me, I love whole life insurance because I am more likely to spend the difference. Whole life helps me save it.