When you think about life insurance only as the traditional way of having life coverage, you might conclude that you don’t need one. But what if we told you that you could use your life insurance policy in more than one way?
This article will break down different types of life insurance policies and the circumstances under which they might be suitable for you. But the main point is to learn how to utilize your policy in many different ways.
After reading this article, you’ll find out if life insurance is a worthwhile investment or not.
Here is everything you need before you make the final verdict.
Is Life Insurance a Smart Investment for Your and Your Family’s Future?
As a form of long-term savings, the primary purpose of life insurance is to provide you with financial security at any stage of your life when you need it most. But that’s not the only reason to buy life insurance coverage.
Life insurance can be a smart investment for these reasons:
- Life insurance can provide you with financial stability that enables you to live better and more comfortably;
- Your family will be taken care of after your death because when the policy expires, the death benefit will be paid to the beneficiary of your choice;
- Life insurance provides you with coverage in the event of an accident or illness;
- If you choose a cash-value life insurance policy, you can use its cash value while still alive. You can use that money for different purposes. For instance, it can help you buy a house, pay for college for your children/grandchildren, and much more;
- Life insurance can be a part of a tax-deferred financial strategy that aims to avoid paying taxes on your savings until you retire. There are other ways you can do this, such as IRAs and 401(k) plans, but if you’ve maxed out your investments with them, life insurance can play a key role in protecting your money.
By taking out life insurance, you invest in your safety, protect your loved ones, and, at the same time, save and plan for the future.
However, while you can use life insurance as a good investment vehicle, there is no universal policy that works for everyone. You have to research and know your needs and wants.
Why Don’t People Purchase Life Insurance?
Here are some of the most common reasons why some people do not buy a life insurance policy:
- They don’t need the insurance component. But, there is a much higher chance that you’ll need it than you don’t. Everyone can have some health issue and huge medical bills to pay in the future.
- They don’t think about taking care of family members. They have no children or spouse to insure after death or don’t even consider leaving the money from the policy to any family members in inheritance. Of course, this reason is relevant, but not excluding. Life insurance can be a successful way to secure your business, create another source of income (in retirement, for example), and pay less taxes. So, even though people usually choose life insurance to protect their loved ones, it’s not the only reason to get it.
- They have life insurance through their job. Many employers offer retirement accounts, and many people are satisfied with them. However, these plans have many flaws – you cannot use that money before the age of 59 ½, you have limits on yearly contributions, and usually, you’ll pay taxes on contributed money which is way more expensive.
- They don’t know anything about life policies. Many people do not purchase life insurance because they are unsure how it works. And it’s perfectly understandable because a huge amount of information can be overwhelming. That’s why we want to educate people to understand their options and how to choose the best one. We won’t lie – learning about life insurance policies takes time, but you can do it on your own, and you’ll get it bit by bit!
What Types of Life Insurance Policies Can You Purchase?
The main difference between life insurance policies is the lasting period. Based on that, we can divide them into two categories:
- Permanent life insurance policy
- Term life insurance policy
Permanent Life Insurance Policy
Permanent life insurance policies offer lifelong coverage. You are insured throughout your life as long as you pay the premiums.
These policies have a savings component, known as the cash value. There, your money grows on a tax-deferred basis, meaning you don’t have to pay taxes on any earnings as long as the policy is active. Besides, you can borrow or withdraw cash from your policy during your lifetime.
Your age, health, lifestyle, and how much coverage you want are the factors that influence the cost of permanent life insurance. The older you are, the more expensive life insurance is. That’s why we always suggest purchasing your policy as early as possible.
The cost of the policy may vary among different life insurance companies. When you apply for this policy, the life insurance company looks at your circumstances and then gives you an estimate of how much it will cost. After that, you will know if it fits your budget.
There are three types of permanent life insurance. Let’s discuss each one.
Whole Life Insurance Policy
Whole life insurance is the prevailing choice of people who buy permanent life insurance. And they have multiple reasons for that.
A whole life insurance policy has a death benefit that is guaranteed and a cash value that grows over time. It also guarantees that your premiums will remain the same throughout your entire life.
Another benefit that this policy offers that others do not is the possibility of taking loans against your cash value. This feature makes whole life policies a suitable tool for infinite banking.
Continue reading if you want more information about infinite banking. We will explain how you can utilize your whole life policy to start your never-ending banking process, which will help you stop depending on traditional banks and start working toward your personal financial goals.
Universal Life Insurance Policy
With a universal life policy, you can adjust premiums and death benefits, giving you some financial flexibility if your budget changes over time. Most universal policies have flexible premiums that let you choose between a single premium and a fixed premium.
Variable Life Insurance Policy
This life insurance policy is “variable” because its cash value can vary based on market performance.
You can choose how to invest the cash value of the policy. The investment options typically include stocks, bonds, and mutual funds.
This is the riskiest type of permanent insurance and, therefore, not so popular.
Term Life Insurance
A term policy is a good option if you have short-term financial needs, such as paying off minor debts or daily expenses.
This type of life insurance offers you life coverage for a specific period of time (usually 5, 10, 15, 25, or 30 years). If you die suddenly while the policy is still active, your beneficiaries will get death benefits. But they won’t be paid if the policy expires before your death.
Different types of term life insurance offer various levels of suitability for different needs. Generally, they are less expensive than permanent policies.
However, term policies don’t have a cash value component. That means you can use the term policy in only one way. This is not necessarily a bad thing; it is simply limited.
Before you even start comparing insurance costs, you need to know both the good and bad sides.
Advantages of Taking a Life Insurance Policy
Life insurance policies provide various advantages for investing in your future.
Financial Protection for Your Family
An insurance policy can provide peace to your family when you die. If anything happens to you, you can rest assured that your policy will take care of your family. A life insurance policy is very important if you want to protect your spouse, kids, or other family members.
Cash Value
Cash value earns interest rates with tax deferral on accumulated earnings, so it can increase over time.
Tax Benefits
Some types of life insurance, such as whole life insurance, offer tax benefits you can use as a savings account. Also, growth in the cash value is tax-deferred, so your beneficiaries won’t have to pay taxes on the death benefit.
Final Expenses
Most insurance policies cover final expenses like funeral costs and medical bills. There is final expense insurance that is usually intended to cover burial costs, but has a lower death benefit
Disadvantages of Taking a Life Insurance Policy
On the other hand, there are some downsides to life insurance that you need to be aware of.
High Insurance Costs
Life insurance can be quite expensive. Costs usually depend on factors such as age and health. If you are older, you are likely to pay higher premiums than younger people with good health.
But here is one fun fact: over 50% of Americans overestimate the cost of life insurance by 300%.
So many people think having a life insurance policy is way more expensive than it actually is. Since there are many factors that affect the price of your insurance, we suggest you try some online calculators to get an idea of how much your premiums will be.
The next best advice we can give you is to make an appointment with a life insurance agent and ask them to estimate your premium for you.
A Medical Exam Can Increase Life Insurance Rates
If you have pre-existing health issues, such as terminal or chronic diseases, you may not be able to get some life insurance policies. Even if you get coverage, it will be more expensive because your life expectancy is shorter.
Once again, that’s why it’s more effective if you get your insurance earlier in life. And if you’re already older or have health issues, there are still options for you.
If this is your situation, you might be interested in our other articles where we covered different policies that can help you, like life insurance without a medical exam or guaranteed life insurance.
How Much Does Life Insurance Cost?
The price of your life insurance policy usually depends on these factors:
- The age and gender,
- Health condition and medical history,
- Coverage amount.
The costs of permanent and term life insurance policies differ. A term life insurance policy is cheaper than whole life insurance because it has no cash value and only lasts for a limited period.
To gain a better insight into their difference, look at the example of a 50-year-old non-smoking female who is considering both term life insurance and permanent life insurance. Here is the result of the costs based on the same amount of coverage:
You can see that the annual premiums and total costs are lower for term life insurance since there is no cash value and the insurance period is limited to 20 years.
How Much Coverage Do You Need?
You’ve decided life insurance is worth it and would like to buy a policy, but you may be wondering: How much coverage do you need?
Before you buy life insurance, you should consider these two main factors:
- Your current and future expenses – utility bills, healthcare, child care, credit card debts, entertainment, social security benefits, retirement plan
- Your beneficiary’s future expenses – basic living expenses, including food, health care, personal upkeep, and higher living expenses, such as student loans, a mortgage payments, and funeral expenses
Based on your needs and life circumstances, you will know how much life insurance you need.
So, Is Life Insurance Worth It?
We all have different priorities and reasoning, but we feel free to say: Yes, life insurance is a valuable investment.
There are so many different situations in which life insurance can be useful that it’s reasonable to assume that everyone will require it at some point in their lives. And maybe just that one time will help our financial stability or even save our lives.
The crucial question isn’t whether life insurance is worth it or not. Instead, the key question is: Which policy will suit your specific needs?
We can’t answer that question for you. But we can tell you what our choice was and how it helped us overcome financial difficulties.
We are talking about a whole life insurance policy. It was an appropriate choice for our financial needs because it can be used in two ways: as life insurance and as an investment. Moreover, we think it will be suitable for most people.
Aside from giving us lifelong protection and cash value, it also gives us the chance to set up our own financial system. Sounds promising?
Take a look at how it’s achievable!
Infinite Banking: Build Your Financial System
It’s the concept of overfunding your whole life insurance policy so that you can take control of your finances. How?
You will borrow the money using the cash value of your policy and return it yourself at any time. The best part? You don’t even have to repay those loans if that’s more convenient for you.
Are you aware of how wealthy traditional banks are? Well, they build their wealth on our money in various ways, like by capturing interest and charging high interest rates and fees.
Infinite banking allows you to do the same with your policy and your money. As a result, you’re getting wealthier, and you won’t need banks anymore.
If you’re asking why it’s called infinite, we have great news for you. Firstly, it refers to the limitless number of times you can redo this process. Moreover, it’s infinite in another sense: you don’t have any limitations on how you will use the money from the whole life policy.
So, you can use your money to buy a property or car, finance your children’s college tuition, or anything else you can think of. You will finally be able to take a few months off of work to travel or to start your own business.
With an infinite banking system, you can finance everything you need in life. That’s why here at Wealth Nation we call this process Lifestyle banking. It helps you own your own lifestyle. And remember: if you don’t do it, someone else will.
With the system that works for you, you can save money even within your family. This kind of saving enables you to start family banking. You can lend money to a family member who will, after some time, pay you the interest and principal.
If you have the proper education, none of this will be difficult. It is easier than you think to learn how to build a financial system.
Watch Our Masterclass!
Going deep into the finance world can be challenging, primarily because it’s hard to start. Fortunately, we offer you a free masterclass.
This masterclass will explain the basics of infinite banking in only 60 minutes. If you’re tired of always being in debt or saving money but never having enough – today is the best day to start your journey toward a wealthier and more secure future.
In one hour, you will understand how to maintain your banking system. You’ll be able to start your own Lifestyle banking system and spend money on anything you want. So, forget about the banks and afford the lifestyle you’ve always wanted!