Do You Control Your Life Insurance Policy Or Does It Control You?

Some investment professionals today advise their clients to buy term insurance to cover their short-term life insurance needs. Based on their age, they can buy a higher face amount at a lower premium than they can with permanent, or whole life, insurance. From a cash flow standpoint, that might make sense, at least temporarily.

For long-term value, however, a term policy is waste of money. It is like renting a life insurance policy for 10 or 20 (or 30) years. Once that term is over, every penny you paid for the policy is gone—wasted. It has no value, and your death benefit expires with the policy. No matter how affordable those premiums may have seemed at the time, they're still gone, and when you figure in those 10 or 20 years of potential interest rate growth, that adds up to significant money lost!

On the other hand, a permanent life insurance policy lasts for your entire life, whether you are 25 or 75. The premiums are higher than for a term life insurance policy, but the benefits it provides to its owner are also higher.

I am a huge proponent that the owner of a life insurance policy - YOU - should be its first beneficiary—not the listed beneficiary on the form. I even authored the foreword to a book on the subject, Live Your Life Insurance. In that book, we argue that life insurance is for you, the living—not for you, the dead. It is a marvelous multi-faceted tool that, in sum total, serves far more functions, and far more safely, than any other financial vehicle.

You already know, for example, that the insurance company is guaranteed to pay the face amount, or death benefit, of the policy to your beneficiary. But did you know that those proceeds are paid to your beneficiary without income tax consequences to your estate or to the recipient?

Another little-known benefit of owning a permanent life policy is that you have complete access to your money, meaning you can withdraw some of the policy's cash value to carry you through an emergency, or simply to take advantage of a new opportunity. This money is also protected from your creditors should you be hit with a lawsuit, and from probate court upon your death. (Oh wow, probate, another subject worthy of a posting of its very own! Suffice it to say, a huge portion of the estate will be lost to probate costs, not to mention the years it can drag out and be contested…)

You may know that you retain full control over your permanent life insurance policy—you own it—but did you know that, should you become disabled, your premiums can be paid for you and will continue to add to the cash value of your policy? In contrast, would anyone continue to fund your 401(k) for you? Of course not! Yet here you have a solution that would continue to fund your retirement even if you become sick or injured—you could even draw from it during that period of time. Some policies even offer an option allowing you to use it to pay for Long Term Care—and at an almost negligible cost compared to a standalone Long Term Care policy.

While you may not think you need a permanent policy, it can serve as a long-term financial guarantee to protect you and your loved ones long into the future. You just need to do your research to find the right policy and insurance company for you.


Copyright (c) 2011 Randy Whittle