A single life insurance policy pays a death benefit at the death of the insured on the policy. An additional insured can be added to the policy with a separate coverage amount on the additional insured. Life insurance policies are issued with a specified face amount and premium to be paid over a specified period of time. The amount of the annual policy premium is based on the insured’s age, gender, health and length of time coverage is required. Depending whether the coverage period is temporary or for the insured’s entire life, the following types of life insurance contracts are available to meet your life insurance needs:
- Term Insurance Policies
- Whole Life Policies
- Universal Life Policies
- Index Universal Life Policies
- Variable Life Policies
Funding life insurance coverage for an insured’s expected lifetime using a planned level premium requires the accumulation of policy cash values to pay for the increasing cost of insurance as an insured ages when the policy costs exceed the planned level premium. There is much debate concerning the best way to fund the long term costs of the maintaining the life insurance coverage in-force. The debate concerns the opportunity costs incurred from the commitment of funds over an extended period of time, the insured’s lifetime. Financial advisors consider the internal rate of return on a life insurance policy’s death benefit and cash surrender value to help determine whether the funds earmarked for life insurance are being used in on an efficient basis. A life insurance policy can provide for the following cash liquidity needs at the time of the insured’s death:
- Replace Income
- Mortgage Cancellation
- Pay Taxes Due at Death
- Special Needs Trust
- Charitable Gift , and
- Fund Business Agreements
Life insurance has long been touted as a retirement plan by over-zealous insurance agents who failed to take into consideration a client’s needs. Individuals can become insurance rich and cash poor when their various financial goals are not taken into consideration. There are complicated rules which govern the tax treatment of life insurance policy loans and withdrawals that could result in an unexpected tax liability if the policy lapses with imbedded gains in the contract. A fee-based financial advisor can better balance your insurance needs and other financial goals to earmark the required funds to provide the needed life insurance coverage while staying on course towards your True North.
