Providing for your family in the event of your death is a fundamental of risk management. Life insurance benefits that replace your income may be one of the best ways to meet your family’s ongoing financial needs.
Term Life Insurance
- Protection only for a specific period of time
- Premiums paid are used to cover the cost of insurance protection
- Often less expensive than permanent insurance
- May be appropriate if you want insurance only for a certain length of time, such as until your youngest child finishes college or you are able to afford a more permanent type of life insurance
Whole Life Insurance
- The insurance company promises to pay a set benefit upon your death
- Can build cash value, which accumulates tax deferred
- The insurance company pays a guaranteed rate of return on the portion of your premium that is in its investment portfolio, building up the value of your policy
- If a policy is surrendered prematurely, there may be surrender charges and income tax implications
Universal Life Insurance
Most universal life policies pay a minimum guaranteed rate of return.
Universal life policies are very flexible. As the policy owner, you can vary the frequency and amount of premium payments and also increase or decrease the amount of the insurance to suit changes in your situation.
Any cash you withdraw from your universal life policy is considered “basis first.” You won’t incur a tax liability until your withdrawals exceed the premiums you’ve paid into the policy. Any amount that exceeds the premiums will be taxed as ordinary income.