Am I Better of Buying Term Insurance as My Life Insurance Needs Will decrease as I Get Older?
Posted by: BeamaLife Editor on 21 Jul, 2009
Life insurance needs will change but it is best to keep life insurance policy instead of dropping the coverage when you grow older. When an individual ages, a permanent policy becomes an increasingly important asset, because a person’s insurability tends to decrease over time. A term policy provides temporary coverage, but relying on term insurance to help offset other expenses can be a risky move. Why? If the term policy expires, the individual loses the ability to utilize the tax efficiencies of life insurance that increase with age and over time. Following are some other important reasons why you should have whole life insurance policy.
1. It helps to counter inflation and its effects on other assets that are used to supplement retirement income by providing stable cash value accumulation.
2. The tax-deferred treatment of life insurance versus the taxes generated by other kinds of assets (CD, Mutual Funds, Savings Accounts).
3. A valuable financial tool when illness or disability strikes (if the appropriate riders are attached).
4. It provides a legacy to your children/grand children or charity, and offset estate taxes.
5. Greater financial protection in the event that Social Security benefits are reduced.
Please let me know your thoughts and comments.
I keep seeing permanent life insurance described as insurance with a savings or investment component attached. The sad thing is that it’s not just laymen who are under this impression. Agents actually believe it!
Whole or universal life does NOT have a “savings” portion attached; it has cash value. In a whole life policy, cash value is in no way to be construed as an added policy expense or separate account. It’s sole purpose is to underwrite mortality expenses as they increase over the life of the insured in order to keep the premium level. While this does open the door for tax-advantaged savings or investment, and there are situations where this is absolutely appropriate; it is NOT, from an insurance standpoint, the purpose of cash value.
I would like to point out that term life can be used as financial protection, to offset estate taxes, as an inheritance as well. The significant difference between whole and term life insurance can boil down to the fact that at the end of the day, a term life policy offers only life coverage. Unlike whole life insurance where there is an investment component attached. But, this in turn also makes whole life insurance policies much more expensive. This extra cost might make sense if the investments assured rich pay offs. But this is not always the case. Marketed as retirement funds or forced savings, it has to be said that there are several more effective ways to invest your money. Many of these policies come along with commissions and high fees. In comparison, term life policies are inexpensive. The money saved as compared to a whole life policy could then be invested in several more rewarding ways.
Denise at AccuQuote
Disclaimer: I work for AccuQuote and this is my personal opinion.
@Denise Mancini
Denise’ comments are a sales pitch that she cuts and pastes to just about every insurance-related blog she comes across. I’d even question whether this is her (or his) real name. She may have posted this to counter my post above, but likely she didn’t even read it; just mindlessly pasted her drivel up on the board as she has all over the internet.
Let me reiterate my point from above: While there is tremendous potential for the right individual to gain from the preferential tax treatment of cash values, these are isolated cases using tailored strategies. Savings or investment should in no way be considered the purpose of cash value in a life insurance policy. Any agent who sells it this way, unless as the result of an extensive analysis into a particular client’s need, is either a crook or does not understand life insurance enough to be selling it.