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Life Insurance As An Investment
By Tony Reed
Term provides coverage for a pre-specified period. For example, term is designed to protect a mortgage or provide income for your family in case of your death. You pay the term premium each month and as long as you pay the premium your policy will stay in force. Once the contract reaches maturity (usually in 10 years) you need to renew your policy at a higher price. If you die while you're paying the premium your estate gets a large sum of money.
In contrast, permanent or whole life remains in force until you die. You pay the premium on a monthly basis for a pre-specified term, which can range between 10 to 20 years. A portion of your monthly payment pays the and the life company that provided the invests the remainder. Eventually you don't pay any premiums but your estate still receives a large payment upon death.
Whole life polices have been criticized because their investment returns are low. Thus you were often advised to buy life protection with a term policy and invest the difference between term and whole life payments in a separate investment vehicle, such as mutual funds, stocks, or bonds. Once you have built up a large pool of assets you don't need the because the assets will provide security and stability in the event of an unexpected death.
However, there is a new, more flexible product called universal life insurance. While
the life company controls the savings in a whole life policy, the savings in a universal life plan are owned and controlled by the policyholder. companies offer a large variety of investment options for this savings component, including mutual funds. Thus, you have the ability to meet your life needs and increase your return on investment.
The major advantage of a universal life policy is tax-advantaged growth. When you pay the policy premium, a portion of the premium pays for the and a portion is invested. However, when you are ready to withdraw the money from your investment, your cost basis ( the portion not subject to tax) is higher with a universal life policy. The cost base for a universal policy is equal to the sum of all your premiums - the amount of money you have invested plus the money you have used to buy life insurance. This is very useful because increasing your cost base will ensure you pay less tax once you sell your investments within the universal life policy.
Universal life provides a powerful combination of life and tax-advantaged investment opportunities. Investors should realize that universal life premiums work twice as hard as other premiums. They should also know that choosing the right product is an important element in the overall success of this strategy. Finally, the benefits of this strategy are magnified if you are in a higher tax bracket.
About the author: Tony Reed is the author of "Life insurance as an investment", please visit his website Life Insurance for more information. |
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Health insurance covers the material consequences of a disease. The main benefits paid by the Health insurance are daily sickness benefits, a hospital allowance, and medical expenses (inpatient and outpatient treatment).
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