Life insurance is a personal and financial choice that impacts all. There are a variety of products that offer reasons for buying every type. We will look at a few aspects involved in buying life insurance.
Types of LIFE INSURANCE
There are two major kinds of policies for insurance. They are termed ‘term’ and universal life policy (for simplicity, we’ve included “whole life” policies in the category that is universal life).
Term insurance is the first thing that people think of when people think about an insurance policy. In this scenario the insured pays an amount to the firm that insures them on a month-to-month or annual basis. The insurance company will allow the insured to receive an amount when they die their death. The typical policy is enacted for a specific amount of time. In the majority of cases the period of the policy ranges between 10 to 20 years. When that time has passed and the insured remains alive, there is nothing remaining on the policy. In the end, more than 90 percent of term insurance policies do not offer any benefits (no surprise that insurance companies make so much money! ).
The latter is the more intricate policy. In this situation the premiums are also paid, but some of this premium will be utilized to cover the ‘insurance’ part of the plan. The rest of the premium functions for investment purposes. Like other securities managed by a fund there is a fund administrator who utilizes the cash to purchase securities. The securities will increase in value and generate revenue from the policy which goes to the policyholder. The value that accumulates builds up in the policies.
After a set amount of time earnings earned from these investments will be enough to pay for the costs of long-term insurance. In the end, the policy is self-funded. There is no additional cost to pay through cash to the person insured. The policy will be in force throughout the duration of the policy and is paid upon the person’s death. Benefits can be received regardless of age of the policy holder. Additionally the benefits total represent how much insurance purchased, and they are the accrued value of the insurance’s investment component.
Universal life insurance policies offer a variety of advantages. The investment portion of the policy is tax-free. Universal life insurance policies are more likely to pay out benefits. In Canada over 85 percent of universal life insurance policies provide benefits. The policy pays out at the time of the time of death or when an individual is 100 years old (at the point at which they become “dead” in the eyes of the company). They also can be used as collateral for loans. But, there are certain disadvantages. These policies are usually more costly than term insurance. The investment component typically comprises an extremely cautious portfolio of securities that have only a small appreciation in assets The policies are extremely in liquid. A significant penalty can be incurred when a person tries to withdraw money from the investment portion or the policies.
CONSUMPTION CONSIDERATIONS CONSULTING CONSUMPTIONS
There are a variety of factors to consider when making decisions about insurance. In general terms, these concerns can be classified into 4 categories: the consideration of beneficiaries the cost of insurance, investment concerns, and ownership.
The first thing to consider is whether you really need life insurance in the first place. It’s the issue of considerations for beneficiaries. Are there any beneficiaries who could be at a substantial financial disadvantage because of your demise?
In the majority of cases it is likely that the departure of a breadwinner in the family can be devastating, however this isn’t always the situation. In certain instances there may be multiple breadwinners with equal financial contributions which means that the death of one could not have any financial consequences. Certain families have financial resources that make them self-insured. Likewise, certain families do not have dependents. In all of these situations it could be the case you’re not required.
If you don’t require insurance for your beneficiary, a different issue to be considered. A lot of lenders require that debtors have insurance as a condition of granting the debt. This is an usual requirement for mortgages as well as business loans and personal credit lines. If the loan must be covered by a policy, it does not become an issue in life insurance, but it is an element in mortgage protection.
Considerations for investment
Most of us there is a beneficiary for whom one of these justifications is likely to be present. So, the next question is whether there is a reason to consider purchasing this insurance as part an overall investment strategy or if the goal of this insurance is to safeguard against financial loss during the time of a death.
Term insurance does not offer any benefits for investment in and of it’s own. There could be some benefit for investors with regard to stratification of risk. Investors with an insurance policy to protect themselves may be a little more likely to invest more heavily. But, the evidence supporting the claim is not convincing.
If investing is the primary concern, a universal policy is more intriguing. It has the advantages of managed securities. But, the insurance regulations permit value growth and earnings to build up within the policy without tax. This is a tax-free refuge for income. When a person dies the proceeds from an insurance policy aren’t subject to probate or capital gains generally. The wealth accrued within the policy will be passed on into the beneficiary of the insurance policy, without incurring taxes. This means that an insurance policy that is universal could provide a reliable method to transfer wealth between generations. In contrast to other securities, which are subject to capital gains tax at the date of death (as as a result of declared disposition) The insurance policy isn’t affected by these taxes.
The downside of this approach is when one tries to withdraw money from the insurance policy even though they are still alive. In this case taxes and penalties can be quite severe. Capital gains are realized, and the policy typically has penalty clauses in the contract. An alternative strategy to the generation of income through the policies is to utilize the policy to act as collateral to a loan. In the event of death the loan will be paid out using proceeds from the policy, and the funds generated from the loan will be used to fund the lifestyle of the insured throughout his or his retirement.
The price associated with these plans is in line with their effectiveness. Term insurance can be quite cheap, but universal life policies can be quite expensive however, they’re also more flexible. Apart from health-related factors and other factors, universal life insurance policies could have higher rates based on the value of the policy, which is linked to insurance as well as the amount of money used for investments. It is evident that this diversity is evident in the cost of the policies as well as the investment goals of the people who are insured.
The last consideration is who owns the policy. In the majority of cases, individuals purchase insurance policies personal to them. But, as surgeons we have a unique opportunity that the policies could be bought by medical corporations. This strategy clearly offers huge tax benefits. Insurance policies are purchased using after-tax money and, by having the insurance policies held in an organization, the tax-free dollars are a greater proportion of income before tax. It is crucial to prove that the company is actively involved in the lives of the insured. This is relatively simple when it comes to medical corporations.
If the policy is owned by a corporation and the insured dies, the death of the insured results in a payout to the company. This is a cash payout that doesn’t have to be subjected to capital gains or probate. The way in the way that these payments are transfered to beneficiaries from the estate insured is easily done using tools for estate planning (likely the secondary will) however the details are beyond the scope of this article.
In any case, when you are considering purchasing a life insurance policy the surgeon needs to be aware of whether he would rather hold the policy as a private or corporate. It is best to discuss this by your professional advisor on financial matters.
Insurance for life is complex issue that requires focus by every consumer. This could be a straightforward exercise to reduce risk for the breadwinner of the family. There are however advanced investment options available. These are to be evaluated with regard to the your overall investment goals and your personal goals.