Term life insurance is great protection for young growing families. Its lower premium structure allows you to provide significant coverage at affordable cost. However, less than 1 percent of all term policies sold ever pay a death benefit. It is temporary protection. If you really want a death benefit to be there when you die, then you need permanent coverage -- whole life insurance.
Do you need it? Like many financial decisions, it depends. But, for most families the answer may be yes. The bottom line is that when you die you need to leave sufficient assets for your survivors to enable them to produce an income stream to live on for a predetermined number of years, perhaps a lifetime. Many plans assume that investments and savings will carry the day for their families late in life.
"Buy term and invest the difference" is a popular philosophy by many financial planners. It can work, especially if you are young, disciplined and willing to put away a substantial percentage of your income for your future. But many people find out that their investments have not grown to the level they require when they are ready to retire and many more end up consuming a large portion of their savings in retirement, leaving an insufficient amount for their survivors. Still others have their assets tied up in equities or real estate. What's more, once the policyholder dies their family will be forced to liquidate these assets at a time when the market is not favorable and they have to sell at a loss. Additionally, while investments and other assets may have income tax consequences when sold, life insurance proceeds pass income tax-free to your family. Another advantage of life insurance is that it does not have to go through a probate process when paid directly to a named beneficiary.
Whole life often has other attractive features like a guaranteed insurability rider that permits you to purchase additional coverage on certain birthdays (25, 30, 35, etc.) and other key events such as marriage or birth of a child. Some insurers provide this rider at no additional cost. Some insurers also offer a valuable long term care option. This feature allows an insured to take an early payout of their death benefit in monthly payments to help defray the cost of long term care. Permanent life insurance premiums can be adjusted by choosing a payment period that best suits your budget. Pay for a 20-year plan can be very affordable. Young families can have their plans totally paid up before they retire. The cash value inside your whole life plan can be an excellent source of emergency funds through a tax-free policy loan. Insured's often use their cash value as a bridge loan when selling one home to buy another, repaying the loan when they sell their home.
Permanent life insurance can provide a ready, safe source of income tax-free funds to help survivors when they need it most. Permanent life insurance can be a valuable part of your overall financial plan.
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