- Written by Super User
Permanent Life insurance remains a neglected commodity, although the consensuses among many economists endorse the purchase of universal life policies. Yet, for many, the question remains - what's the benefit of buying these types of policies, other than a death benefit, when you could simply save your money in a bank account?
It all depends on your obligations and what you need to accomplish in your golden years, yet studies find that most people are always under-insured. As inexpensive as insurance policies have become, people still sacrifice what they need the most.
The Flexibility of Permanent Insurance
Typical life insurance policies provide temporary coverage for a specified period of time, such as 10, 15 or 20 years, but you may live longer than the time specified in your policy, then the policy will expire, and you will have to find yet another policy, that is, if you want to have coverage.
Universal insurance policies are permanent. With a permanent life policy, you do not have to worry if you outlive the policy term because your contract provides you with coverage for your entire life as long as premiums are paid.
Permanent Policies At-A-Glance
• Flexibility to change the premium and benefit amounts
• A guaranteed interest rate
• You can take loans against the cash value
• The option to use the value of the cash to pay in full an insurance smaller in the future
Universal insurance is a hybrid policy - a blend of death and premiums are paid towards your life death benefits and an investment fund. When you pay the premium to the insurance company, a portion pays for the policy and the balance is invested, most likely, in mutual funds and earns a return.
The cash value of a permanent policy is the crux of insurance: It is a savings account that you have within your policy and accumulates for you over time, not to mention, has deferred tax.
Grow it or Give Your Money Away
Retirement can certainly become less fulfilling when you must share your income with Uncle Sam. Every penny you've socked away is still encumbered by taxes. The good news is that the cash you've accumulated in a universal policy can be tax-free, that is, after retirement.
Sure, your typical savings account at your local bank helps you save money, but today's low interest rates certainly won't help you build a nest egg. Retirees can make monthly withdrawals from the cash value of a universal insurance policy to supplement a limited income. As long as the amount of withdrawals is less than the amount of the premiums, the withdrawals remain tax free.
The cash portion in a permanent life insurance policy earns a higher rate of return due to their equity investments. Additionally, not only are these policies flexible, but they are adaptable to rapid stock market changes. The policy pays out a minimal guaranteed rate of return, no matter what, so when it comes to risk, the insurance company absorbs it, not the insured.
The Versatility of Life Insurance
Consumers have begun to explore the under-stated value of life insurance policies, and how to take advantage of this flexible asset. Universal policies offer a variety of options that we usually ignore. For example, today, many senior citizens are faced with challenging financial choices and have opted to utilize the policy's cash accumulation for loans against the policy and their long-term care expenses.
As the cost of living rapidly increases, you can quickly become destitute, especially when paying for long-term senior care, but loans are just one way to monetize an insurance policy. As long as the policy has value, you can borrow up to 90 percent of the cash value of your policy, tax free. This certainly comes in handy when you're facing a financial challenge.
In comparison, bank loans offer no advantages; you must meet credit guidelines, you pay back the face value of the loan plus interest and you have time-enforced restrictions on that loan. The cash value portion of your policy is your money and you can borrow the money at any time.
Today's cost of living is outpacing retirement checks, leaving very little to live on, thus if you plan on having an affordable life cover the necessities for those golden years. Insurance policies are an outlet that often helps when you need extra funds.