Life Insurance As An Investment – Important Considerations
Investing in life insurance gives you an opportunity to transfer the risk of an early death into a payout for your family, thereby securing their future in case you pass away unexpectedly. Life insurance policies today’s are packaged with features borrowed from the world of investments. You can find a plan that blends the traditional features of such policies with investment options. Life insurance as an investment can be a viable option but there are several factors worth considering.
Understanding cash value
There are basically two options when it comes to purchasing life insurance: permanent or term insurance. Term life only covers you for a specific duration. If you happen to live past your policy period, you do not get a payout and no amount is paid to your beneficiaries.
Permanent insurance on the other hand is a lifetime cover, but most expire at 99 years of age. This insurance plan also comes with the cash value feature which often makes a good selling point. In addition to what your beneficiaries will get, part of your premiums goes to a cash value account. The major benefit with this is that the account is tax-deferred.
You also have the option of borrowing against the cash value you have accrued. However, this makes economic sense when your cash value is high and the opportunity you are investing generates higher returns than what you are being charged as interest. The cash value can be a major benefit but it all depends on how you use it.
Whole life premiums are often more costly when compared to term insurance mainly because of the cash value feature. In Australia, however, the advent of superannuation put an end to whole or life insurance, leaving term life as the only cover available when it comes to life insurance.
Tax benefits associated with life insurance
One of the chief advantages of universal life insurance is the tax benefits. The earnings on your policy are not taxed. The taxable gains can be cashed out or this amount can be used to reduce the payable premium. The gains are also not taxed once the policy holder dies. However, removing cash from your life insurance policy may leave you vulnerable once life uncertainties happen. It is worth noting that universal life insurance is no longer available in Australia either. Click here to know more.
Other options
There are many insurers that pay annual dividends on life insurance policies. This is usually the money that remains after the premiums are collected and overhead expenses are deducted. Another benefit is that they are not taxable, making them a good way to earn extra cash from your life insurance. There is also the option of life settlement, this is where your policy is sold to another party and you get cash in return.
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Life Insurance As An Investment is a post from: http://www.mecovered.com.au.
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