What To Do With Whole Life Insurance
Post date: August 22nd, 2010 |
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This account talks about whole life insurance and lower cost permanent coverages.
Let’s first discuss some background information. Did you know that up until the late 1970s, whole life insurance was the only type of permanent life insurance available? It was designed to endow at age 100 which means the cash value and the death benefit would be identical at that age. The only alternative was term life, which is designed to last for a certain amount of time and generally have much lower premiums.
The option of borrowing a portion or all of the cash within a policy at low interest rates is an advantage of whole life policies. What most owners do not realize is that borrowing cash from a whole life policy reduces the death benefit by that specific amount. In addition, the death benefit and the cash value at death are typically not paid by current whole life policies. As the insured person’s age increases, their risk decreases, and the cash value stays with the insurance company.
Interest rates skyrocketed in the late 1970s, thanks in part to inflation and other factors. Imagine that you are permitted to borrow from your insurance company at 2-3&, and transfer that money to a more or less risk-free money market fund yielding 15-17%! Without warning, the insurance companies had a problem. The answer was universal life insurance. This new form of coverage is much more adaptable and pays higher interest on accumulated funds. Today, the mass of permanent life insurance policies are comprised of universal life insurance.
Now, the news you can use!
It was only five years ago that the insurance industry developed a consumer friendly type of permanent insurance that within months became the first choice for most people, and rightfully so. This policy guarantees the death benefit and the premium cost for the lifetime of the insured.
This accomplishes some very positive things. First, is reduces the policy premium because the only thing being purchased is pure protection. Generally speaking, there is no cash accumulation. Secondly, it permits the consumer to compare prices between policies without the requirement of an advanced degree in mathematics.
Even if you already own one or more whole life policies, let’s examine how this policy can work to your benefit.
You do not have to stress about paying any current tax if you transfer funds from one policy with cash value to another. This is what we call an IRS sec. 1035 exchange, and is able to lower the level premiums on the new policy for the life of the insured.
As is true with any life insurance changes, a course of action that is best suited to your needs should be dictated by individual circumstances. Guaranteed premium universal life insurance has many benefits; this is merely one of them.
Think about getting in touch with an independent life insurance agent to research some top rated life insurance companies and compare carriers and premiums.