The Best Life Insurance for Your Needs
Life insurance offers a way to provide for your family in the event that you die. You pay a premium to the life insurance company and in return for the small premium, it promises to pay your family thousands of dollars. If you don’t die before you no longer need the policy, whole life policies and return of premium term insurance offer an opportunity to receive money back. While the return of premium term insurance does just as the name implies, returns the premium you paid throughout the years, whole life insurance can give you a return over the funds you paid.
However, which type of insurance is the best for everyone? There is no clear cut answer since each policy type works best in different situations. While the whole life policies cash value is a nice feature, if you need a lot of insurance to cover short term needs and have very little money, the term policy is often the best type of life insurance for your situation. You can purchase large amounts to for very little money.
If you have a mortgage, need money for to finish paying for the expenses of a family in the event of your death or have large debts, term life insurance is often the route to use. However, there are some needs, which simply don’t disappear. The cost of burial is one of them. For this type of need, using a permanent policy is the best. You often can combine a smaller permanent, whole life policy with a term riders to take care of the immediate needs and those that you’ll have forever.
Other situations that require a permanent life insurance policy are estate planning and business buy/sell arrangements. In both situations, the parties can opt for a temporary term policy but eventually, they need to convert to a permanent plan. In estate planning in particular, the policy needs to cover the cost of the death taxes and remain owned by either a beneficiary of the estate or an insurance trust. Since premiums continue to increase as a person ages, purchasing a permanent plan as soon as possible is the wisest move.
Finally, life insurance is one method of saving funds on a tax-deferred basis. People not eligible for a Roth or traditional IRA and in need of life insurance can use the plans as a method of saving. If they need the funds, they don’t have to cash out the policy. In fact, that would trigger a taxable incident. Instead, they can borrow from the policy and never pay taxes on the growth. The difference between the interest accumulated and the interest on the loan is often just a fraction of a percent, far less than taxes. When the insured dies, the company subtracts the loan from the proceeds and there’s no taxable incident.
When looking for the best life insurance plan, looking first to your needs is the most important step. Once you establish your needs, you can then decide between a permanent plan, term plan or a combination of the two. The decision between plans at that point is a matter of cost versus return or simply overall cost.