Life insurance is more about security for your family than building wealth. Depending on your circumstances, it makes sense to include it in your investment portfolio because it can provide peace of mind – and depending on which kind you choose – may also provide a tidy nest egg to either borrow on or withdraw from in retirement.
Choices in life
But life insurance is really about death. To carry a life insurance policy means that when you die, your dependents or beneficiaries with receive a cash lump sum pay out – it’s chiefly a cover to help your loved ones who may be dependent on your income.
Term Life Insurance means it only carries a death benefit – only paying out when the policyholder dies. If the policyholder outlives the term of the policy, then the contract ends on the date signed with no monetary benefits issued. But during this time – usually 20 years – your family has been covered in case of your death.
Whole Life Insurance however, provides coverage for the full duration of the policyholder’s life. However, it does carry a cash accumulation value that can be paid out if you so specify this before your death. As such it can form both a safety net for your beneficiaries and still provide some investment return during your life.
Term life insurance:
• This is an important consideration if you have people who rely on you for financial support. Therefore, your individual life insurance needs will depend on your personal situation.
• Term life insurance covers the insured for a specific period of time, usually a 10 or 20 year term.
• The premiums are a fixed rate, and the policy itself has no cash value. If you die before the maturity date, then your family will benefit – but if you outlive that date, then the policy ends with no monetary pay out. There is no investment value.
• If you have young children or a spouse who depends on your income, a term life insurance policy is definitely a good option.
• Term life insurance is intended solely as financial protection for your heirs.
Whole Life Insurance:
• A whole life insurance policy covers the insured for their whole life while simultaneously building cash value.
• A portion of the cash accumulated can be withdrawn during the life of the policy or borrowed during the life of the policy.
• With a whole life insurance policy, the premiums are going to be much higher.
• Payments on a whole life insurance policy remain the same throughout the policyholder’s life
• If the policyholder stops paying premiums, then the insurer pays out the cash value up to that point of the policy’s life, to that policyholder.
• If you purchase a whole life policy as an investment, you get growth that’s tax-deferred. You’re not paying taxes on the interest or dividends earned on your life insurance until you make a withdrawal.
• Some say that you might even be better off investing your money where you may get a higher return, such as the stock market, or creating a trust for your family. And you would avoid paying premiums.
Value and Investment
For most people, the primary benefit of purchasing a policy from a life insurance company is the protection it provides to their family.
The peace of mind element that comes with the purchase of a life insurance policy can be invaluable. If you have saved relatively little money and you worry about your spouse or children in the event of your death, a life insurance policy can take away some of that worry. Sometimes considerable monies may be paid out on relatively small monthly premiums.
A whole life insurance policy can be a good investment and savings tool for certain people—in particular, high net-worth individuals. It can be especially useful as a way to help minimise estate-owed taxes in the event of someone’s death.
Life insurance has its benefits, but it does not eliminate the need for other long-term or retirement investment planning.
• If you are wealthy enough with a good accumulation of assets, you may then be able to take care of yourself independently.
• If your children are grown and working and supporting themselves, they may therefore have no need of your life insurance protection.
• Before decision-making, consider your age; your health; the age of your children; your family’s financial needs; current levels of debt; and bond repayments.
Check your policies, check your life
Verifi is an online tool that provides you with an immediate and up-to-date overview of all your life insurance and investment policies by sourcing information from all the major life insurance companies – and presenting the information in a comprehensive report.
With Verifi you are able, for no charge, to access information on all your life and investment policies at a glance. You are able to check the types of policies you have, the names of the insurance companies providing the cover, the nature and extent of the insurance cover provided – and other vitally important information such as the details on your policies being correct.