Investing in Life Insurance

by on January 18, 2011

Financial risk of dying early is a phase of stress for almost everyone. Ensuring a payout for family members who might otherwise be left in economic turmoil is now possible by investing in life insurance policies. These days, life insurance policies offer a combination of features from the entire world of investment, because generally these come with a blend of traditional insurance features and attributes of a mutual fund account as well.

These days, there exist various modes for investing in Life Insurance policies. Earlier it was a simple phenomenon of investing an amount for a particular period of time and using it for a specific purpose. But now it comes with many amendments and lures.

Cash value insurance policies are one of the most preferred life insurance policies, in which the premium or fees that is to be paid initially is a comparatively larger amount. Out of this premium, some amount that is in excess is invested in a separate account, either by the insurer or in an account personally managed by the policy holder. This way, chances of building up cash value are a bit high.

The upcoming gains of these policies can be used in several ways; like for increasing the death benefits. With this amount, the policy could be kept in effect even when the monthly premiums are no more paid. The only drawback of these policies offering a large number of investment features is that these comes up with complex terms and conditions and are offered by salespeople who tend to earn a significant commission off your initial premium.

There are variable life insurance policies also in the market, but in these the cash value and benefits vary depending upon the performance of your investments. The benefits may actually decrease or go away completely as well. Therefore it is important to have a deep study about the investments you are planning to invest in and this can be done easily by the prospectus available by the companies online.

Life insurance policies also offer you with great Tax Benefits. In fact, these Tax benefits are the most important among the advantages of a variable universal life insurance policy. The earnings that are invested annually for the life insurance are not taxed and on the other side, the taxable gains on policies that can be cashed out later can be reduced by the amount of insurance protection provided by the plan. On the death of the policy holder, the gains are not usually taxed.

There also exist pure investments accounts like IRAs, Roth IRAs and 401k plans that offer similar tax benefits and thus are the recommendable choice for many financial advisers. Other than these, stocks bonds, international mutual funds, money market accounts and balanced mutual funds are other investment options that are offered by insurance policies.

It is always beneficial to purchase a variable universal life insurance policy directly from the company and not from the salesperson. This way you can save the cost that is charged by him.

{ 4 comments… read them below or add one }

Permanent Insurance February 8, 2011 at 4:22 am

Hey
My husband, 32 and I, 30 are seeking into life insurance. Can anyone tell me which company or web-sites We can work with to have details. There are many around… wouldnt know how to start. Who do you personally use? Is there a medical exam included? What type of premiums are you paying? Is it fixed or does it go up every few years? We live in North carolina also. Any help would be appriciated.

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DW August 25, 2013 at 8:19 pm

Permanent style policies such as Whole Life, Variable, and Universal can be okay for certain people. But honestly I just prefer 30-Year term insurance. When you crunch the numbers on a simple term policy, the difference between it and a whole life product is enough to invest separately and eventually grow to a figure beyond the face value of the permanent life insurance value! It’s amazing how this all plays out when you collect a few quotes and crunch the numbers in Excel. Of course the salesman never tells you any of this. My experience is that life insurance is simply best used when you keep it simple and don’t get into anything too complicated above and beyond what life insurance is intended to do – cover your expenses in case you die.
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Donald Quixote August 28, 2013 at 10:57 am

It really depends on your situation. When you are younger and have family member that you need to care for a larger life insurance policy is needed. But as you age and you have fewer concerns and dependents it is time to reduce the life insurance (unless you really feel like leaving a gift to your posterity).

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MLIQ123 August 29, 2013 at 8:05 pm

I certainly agree with DW. Permanent life insurance can be the right option for some people, but those individuals are few and far between when you consider that whole life can cost between 5 and 10 times more than term life insurance. I would suggest that families buy a 30-year term life insurance and take the difference in premiums that they would have spent on whole life and invest in index funds. You will almost always come out significantly ahead.
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