Life Insurance

People depend on life insurance for many reasons. Some households use it for income protection, as they have children or other dependents for whom they provide. Retired and middle-aged working individuals may use it for legacy or estate planning goals. It could be part of a broader legacy or estate plan, as the tax treatment of life insurance allows for an efficient transfer of wealth to loved ones.

Depending on your goals, life insurance comes in many forms, and one is Single-Premium Indexed Universal Life Insurance. It’s also known as “Single-Premium IUL,” or even just “SPIUL.” Let’s take a closer look at this universal life insurance option and what it might have to offer. Read More

It’s relatively straightforward to know how much insurance you might need for certain valuables, like a car or your home. But many people don’t know the answer to this question: “How much life insurance do I really need?”

If you find yourself in these shoes, you aren’t alone. According to a study by Life Happens and LIMRA, 40% of people haven’t bought life insurance, or more of it, because they are unsure of how much or what type to buy.

Whether you are retired or still working, life insurance can help solve for many issues. For young to middle-aged couples with dependents, it may be a source of financial protection, income replacement, or supplemental liquidity.

And for households of retirement age? Life insurance can let you enjoy tax-advantaged income, pass a legacy to heirs in a tax-efficient manner, mitigate tax burdens upon death, and even provide much-needed liquidity for post-death expenses.

Here are some helpful basics to consider as you research how much life insurance may be right for you. Read More

Millions of Americans depend on life insurance for financial protection, not to mention for many other reasons. But as people get older, insurance coverage may seem out of reach. Many seniors think they don’t have good life insurance options due to age or health.  

Even if you are in your golden years or not quite there, the good news is you do have choices. For example, there are some life insurance policies that may be bought up till age 90. That isn’t the most frequent age to get life insurance for seniors, but it’s helpful to know there are options for just about any life-stage. Some insurance options might also be available for those who may not be in the best health. Read More

Life insurance isn’t a one-size-fits-all solution. You have many options to cover your needs, including the ability to purchase additional benefits on a basic life policy. These additional policy benefits are called life insurance riders.  

Some riders are automatically included in a policy at no extra cost. Other riders will require additional premium cost. Life insurance rider benefits are available for many needs, from terminal illness and long-term care costs to term insurance coverage of children or of a spouse. With that said, you must meet the conditions outlined in the rider to enjoy its particular benefit.

In some policies, you may blend different riders together, at additional cost. The riders you choose, whether included in the policy or purchased at additional cost, may be used for current or future insurance needs.

Since many life insurance riders mean additional premium to be paid, it’s prudent to be sure you don’t get too much insurance. Knowing the basics of different riders and what they offer is a good starting point. Let’s go more into that now. Read More

When shopping around for a life insurance policy, you have many choices. From monthly low-cost term insurance to more expensive but long-term coverage benefits of whole life and universal life insurance, you face a wide landscape of options: term life vs whole life vs universal life insurance.

To help you get started, here’s a quick guide on the differences between term life vs whole life vs universal life insurance.

What to Consider When Buying Life Insurance

When it comes to life insurance, you often focus on two things: length of coverage and price. You may have heard of trendy sayings like “term over perm” or “buy term and invest the difference.” But the question of what life insurance you need isn’t an “either-or” situation. Nor is term insurance the “best” option by default.

Sure, you may purchase term coverage at the lowest initial cost. But when you need to renew your policy, term rates often increase substantially. You may also find that you need more than one type of life insurance policy.

Consider several variables when selecting from term life vs whole life vs universal life insurance, including your risk tolerance, age, potential changes in the number of your dependents, health status, time horizon before retirement, and whether your needs extend beyond just protection.

Term Life vs Whole Life vs Universal Life Insurance

When considering life insurance, you have several options, each with its unique features and benefits. Understanding the differences between term life vs whole life vs universal life insurance can help you make an informed decision that best suits your financial needs and goals.

Term Life Insurance

Compared to whole life and indexed universal life, term life insurance provides the simplest coverage. As the policy owner, you hold the guarantee of a death benefit for a certain period. That can last anywhere from 10-30 years, with most term policies lasting for 20 years.

When a term policy expires, that’s it. Your loved ones won’t receive any payouts since the policy has ended. You may be able to renew your term policy, but your new rates will be based on your current age and the actuarial risks that come with it (for example, heightened health risks, shorter life expectancy, etc.).

Benefits of Term Life Insurance

The benefits of term life insurance include fixed premiums and the simplest form of life insurance coverage you can purchase. It is available at a lower initial cost than whole life and indexed universal life (IUL) insurance, providing a straightforward, guaranteed death benefit for a preset duration. 

Term life insurance may also offer the ability to convert to a permanent policy, and some policies include riders for healthcare and long-term care costs. It provides flexible, short-term protection when you need it.

Disadvantages of Term Life Insurance

Some downsides of term life insurance include the risk of the policy lapsing if premium payments are late or missed and the absence of a death benefit upon expiration. Renewal rates can be significantly higher than your initial rates, and the policy does not include any cash value. 

Moreover, for some people, the lack of a “return benefit” after potentially decades of premium payments can be difficult to accept.

Term insurance is a short-term, economical way to insure a large amount of money or the income stream that a wage earner brings home. If you are looking for lifelong coverage or need efficient legacy planning vehicles, you may be better served by permanent insurance options.

Whole Life Insurance

Whole life insurance comes with a cash value, which you can access in later years. When comparing whole life – and other cash value insurance for that matter – to term life, it’s similar to buying versus renting a home. 

Renting will be less expensive in the short run. But over the long term, it may prove to be the most costly. In contrast, buying a home enables you to build up home equity over time – not to mention it may be potentially lower cost over time.

It is like owning a home that has a corresponding equity component. Over time, this equity component, or the cash value grows tax-deferred, and your premiums don’t increase. That said, whole life insurance does come with more costs to cover, including management fees.

Benefits of Whole Life Insurance

The benefits of whole life insurance include fixed premiums that don’t rise with age and guaranteed benefits. It is the simplest form of cash-value life insurance, allowing you to pay up the policy’s face value in 10-20 years or by age 65. 

You can access the cash value via loans or withdrawals later on, with no age 59.5 withdrawal rules, as long as the policy doesn’t become a Modified Endowment Contract. The cash value grows on a tax-deferred basis, and money can be taken out potentially tax-free. The insurance company may also pay dividends to the policy owner.

Whole life insurance may be a good option if you want lifelong coverage and more straightforward costs of insurance than other cash-value insurance products. It can also be a better fit if you are a retirement saver looking for alternatives to the meager interest rates of CDs or bank saving accounts.

Cons of Whole Life Insurance

Some downsides of whole life insurance include often having an interest rate that is not guaranteed and higher costs compared to term insurance. Premium payments are not flexible and must be paid consistently to prevent the policy from lapsing, which could trigger a taxable event. 

Whole-life policies are also likely to earn lower interest and typically do not build cash value early on.

Indexed Universal Life Insurance

Index universal life insurance, or “IUL,” can enjoy stronger opportunities for cash value growth than whole life insurance. Its interest-earning potential is tied to an index, like the S&P 500 price index. 

Unlike whole life insurance, IUL offers flexibility in premium payments, with certain conditions. The cash inside an IUL policy grows tax-deferred, just like with whole life, and you can tap into the cash value for premium payments.

While the growth potential may be more substantial, indexed universal life insurance is a newer innovation in the insurance marketplace. Your premiums may increase over time, as the cost of insurance may rise. Insurance carriers may hold derivatives as underlying investments in IUL policies, which can make these policies even more complex.

IUL lets you enjoy growth potential tied to an index, but it comes with limits. IUL insurance carriers “cap” the growth potential at certain predetermined rates, and likewise, they may protect against negative index changes with a “floor.”

Many IUL policies have a floor of 0%, meaning your cash value doesn’t drop in value when the index goes down. This applies when the insurance carrier credits interest to your policy. Your policy may lose value due to policy costs you have to pay should you earn no or low interest at a given point.

If you relied on high interest-earning years to fund the cash value, it could lead to a policy lapse in later years, should the policy get low interest in later times. Likewise, taking policy loans and paying loan interest can be risky if earned interest doesn’t surpass the costs of the loan.

Advantages of Universal Life Insurance

Some benefits of indexed universal life insurance include guaranteed benefits, although fewer than whole life insurance, and the potential to obtain a larger death benefit. The policy allows for flexible premium payments and the possibility of earning more interest than whole life insurance. 

You can access the cash value through loans or withdrawals without age 59.5 withdrawal rules. It also offers tax-deferred growth potential for retirement money and serves as an ideal vehicle for supplementing income or maximizing an estate for beneficiaries.

If you are looking for safer alternatives to stock market volatility, you may want to consider indexed universal life. Likewise, if you are looking to maximize legacy assets for heirs or provide a tax-efficient estate transfer to your loved ones, you may look into this insurance type. 

IUL can also offer another vehicle for supplemental retirement income when you have maximized contributions to IRAs, 401(k)s, and other savings plans.

Downsides of Universal Life Insurance

The drawbacks of indexed universal life insurance include the possibility of premiums increasing over time and the opportunity to earn interest being dependent on index performance. The interest-earning potential is often “capped” by insurers, and the policy may lose value if the costs outpace the low interest earned.

Choose the Best Life Insurance Policy For You

When considering term life vs whole life vs universal life insurance, it’s by no means exhaustive. If you are considering life insurance as part of your financial strategy, especially permanent insurance, be prudent.

Conduct careful due diligence and consider guidance from a financial professional who acts in your best interest. When planned and implemented properly, a life insurance policy can go a long way toward bringing you more financial security and peace of mind.

Ready for personal attention as you consider different insurance options? A financial professional at SafeMoney.com can assist you. Use our “Find a Financial Professional” section to connect with someone directly. If you need a personal referral, call us at 877 476 9723.

Understanding the intricacies of life insurance policies is crucial, especially when encountering terms like modified endowment contract or MEC. What is a modified endowment contract, and why does it matter for your financial planning? Essentially, a life insurance policy becomes a modified endowment contract when contributions exceed IRS limits, altering its tax status.

This blog will explain what a modified endowment contract is, explore its purposes, and identify scenarios where a life insurance policy may shift into an MEC, affecting your tax responsibilities. Such insights are vital for managing finances effectively.

For those looking for detailed guidance, SafeMoney.com connects you with seasoned financial advisors well-versed in MECs and retirement strategies, ensuring you never face financial uncertainties alone.

Read More

Generally, many people think of life insurance as a “peace of mind” option. It’s a means to provide dependents, such as a spouse and children, with financial support after the primary on the policy is deceased.

That said, there are many different types of life insurance policies that are used for a variety of financial planning strategies, including retirement, tax-adavantaged wealth building, and estate transfers. While most people begin to pay into life insurance at a younger age, if you are over 70, it may still make sense to purchase a life insurance policy. In fact, depending on your goals and situation, a life policy may be a pretty helpful addition to your overall financial strategy.

Let’s get into some important things to consider if you are thinking of buying life insurance at 70 or older. Read More

In a few ways, a Roth IRA and life insurance share some similarities. They both receive tax-advantaged treatment in the IRS code. They enable efficient wealth transfers from one generation to another, and they can provide a tax-free legacy. But despite these similarities, Roth IRAs and life insurance are very different.

For one, a Roth IRA is a retirement plan while life insurance is, well, just that – an insurance product. Yet some people have been asking which of these options might be the “better” retirement planning vehicle.

However, it isn’t an “either-or” question, but rather a matter of what makes sense for each person based on their individual needs, goals, and overall financial picture. That may include planning situations in which a life insurance policy is used as a tax-advantaged growth and income vehicle alongside a Roth IRA. And maybe even some other retirement accounts!

Nevertheless, it’s important to understand the differences between a Roth IRA and life insurance – including ways the rules may apply differently to them. With that said, here’s a quick look at these two options. Read More

Lots of people agree on the importance of life insurance. But it’s something that many of us don’t own, as research indicates.

According to LIMRA, a financial research group, 30% of U.S. households owned no life insurance at all just a few years ago. About 48% of households, or 60 million families, had an insurance gap that averaged $200,000 from what they actually needed. Factoring in average total coverage, almost 5 in 10 families would have only three years of household income replaced by their life insurance policies.

So, what are some reasons that Americans aren’t buying life insurance? Read More