When choosing an insurance policy, it is important to first understand how insurance works. A firm understanding of these concepts is key when evaluating a policy to see if it suits your needs. 

The three most crucial components are premium, deductibles, and your policy limit or coverage. Insurance, as you know, is changing and advancing every day.  Most insurance agencies are now modernizing and making everyday policy changes and endorsements effortless by using applications such as insure signs, which allow users to electronically sign policy changes and endorsements via email. 

Today, we are going to cover different types of life insurance and the benefits of investing into them, as well as frequently asked auto and home insurance questions.

Why You Should Invest Into Life Insurance

There is no doubt that life insurance acts as a source to save money. This is why it is imperative that you buy these policies sooner than later in life. 

As you continue to pay your premium, extra money is accrued in the form of a cash value. This feature of life insurance can come in handy on a rainy day as you can borrow cash from it, sell it against a policy, or take out your income from it.

What is life insurance? 

Life insurance is a contract between an insurance policy holder and an insurer or assurer, where the insurer promises to pay a designated beneficiary a sum of money, upon the death of an insured person, in exchange for premium during their living years. Typically, life insurance is chosen based on the needs and goals of the owner of the policy, and is used as a financial safety net.

Benefits of Life Insurance 

Most people don’t know you can borrow against a permanent or whole life insurance policy. Policy loans are borrowed against the death benefit, and the insurance company uses the policy as collateral for the loan. 

For example, permanent life insurance, such as whole life, universal life or variable universal life, covers you for your entire lifetime and features a cash value account. Once you have enough cash to cover your premium payments, you can terminate the policy and take the cash. 

Whole life Insurance — This provides a set amount of coverage for your entire life. As long as you continually pay your monthly premiums, the beneficiary of your choice will receive the agreed upon benefit amount upon your death. 

Whole life insurance policies are a prime example of how life insurance can be used for investment purposes. This type of life insurance policy builds up a cash value from a part of the premium being invested, but is typically the more expensive route to go when it comes to life insurance, as you are paying for permanent coverage as well as additional costs to fund your investment account.

Universal life Insurance — Universal policies provide another form of permanent life insurance, with generally lower and more flexible premiums, an adjustable death benefit, and an investment savings element depending on risk tolerance and asset allocation. 

This type of life insurance may require a series of life insurance underwriting questions as well as a medical exam to qualify. It also allows its policyholders to borrow against the accumulated cash value without tax implications. Finally, it allows the policyholder the flexibility they need to adjust their premiums and death benefits, and consists of two main components: premiums and cash value accrual. 

Universal life is a flexible, lifelong option, as you only have to pay the minimal premium required to keep this policy, and its cash value grows based on the current interest rate set by your insurance provider.

Variable Universal Life Insurance — This provides permanent life insurance to policy holders, with the objective of accruing cash value. In a variable universal life insurance policy, the cash value you accrue by paying premiums on time is invested in a wide variety of separate or sub accounts, similar to mutual funds. 

Exposure to market fluctuations can generate significant returns, but could also result in substantial losses. This type of life insurance policy is built on a traditional Universal life insurance policy, but has a separate sub-account that invests the accrued cash into the market.  Much like standard universal life insurance, the premium is flexible. 

Variable Universal life insurance policies typically have both a minimum floor and a maximum cap on the investment return associated with the savings component of this type of life insurance policy. Each year, your insurance provider will deduct what is needed to cover mortality and administrative costs, and the remaining monies will stay in their allotted accounts to continue to earn further interest.

What steps to take after the loved one passes? 

If a loved one has recently passed, you may be unsure of the next steps to take. You should notify their insurance provider, provide them with a copy of your loved one’s death certificate and ask them to end any coverage in their name. But, if there are any dependents, continue the coverage if needed. Notify their life insurance company and fill out appropriate claim forms in order to receive any death benefits if you are named as a beneficiary. In most cases, if you continually pay the premium for your life insurance policy, you can also keep the money in the account to accrue interest until you die. Life insurance receives favorable tax treatment, unlike any other financial instrument. Death benefits are generally income-tax-free to the beneficiary.

Conclusion 

To conclude: life insurance can very well be a good investment for you to look into. Permanent life insurance is flexible and can have investment benefits, depending on your personalized insurance policy. 

If you are looking for an investment that will also provide a death benefit to your loved ones in case of emergency, you may want to look into life insurance options that will accrue a cash value that you can borrow from tax-deferred. 

Whole life insurance policies are a prime example of how life insurance can be used for investment purposes. This type of life insurance policy builds up cash value from a part of the premium being invested but is typically the more expensive route to go with life insurance as you are paying for permanent coverage as well as additional costs to fund your investment account. 

Universal life insurance provides another form of permanent life insurance, with generally low, flexible premiums, an adjustable death benefit, and an investment savings element depending on risk tolerance and asset allocation. This type of life insurance may require a series of life insurance underwriting questions, as well as a medical exam to qualify. This type of insurance also allows policyholders to borrow against the accumulated cash value without tax implications. 

Variable Universal life insurance, meanwhile, provides permanent life insurance with the objective of accruing cash value. In a variable universal life insurance policy, the cash value you accrue by paying premiums on time is invested in a wide variety of separate or sub-accounts, similar to mutual funds. 

What type of Life insurance investment is right for you? Contact your local licensed life insurance agent to find out more about how you can start accruing cash value today.

(Disclaimer): The information provided on this website does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.  Information on this website may not constitute the most up-to-date legal or other information. This website contains links to other third-party websites. Such links are only for the convenience of the reader, user or browser; the ABA and its members do not recommend or endorse the contents of the third-party sites.

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Mary Elise Marshall
Author

Mary Elise Marshall is a licensed sales/customer service specialist for the First Florida Insurance of Ormond Beach. Her day to day tasks entail answering phone calls, policy questions, writing insurance policies, coverage, and vehicle changes, updating the system with renewals monthly, mortgage clause changes, and following up to make sure endorsements are processed correctly and in a timely manner. With nearly 2 years of experience in insurance Mary’s attention to detail, knowledge of over 30 companies procedures requirements and other policies offered by this office makes her an asset to leading insurance agencies like First Florida Insurance.

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