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When Is Whole Life Insurance Appropriate?
There are many beliefs regarding whole life insurance but like anything, there is no exact right or wrong. Purchasing whole life insurance is a decision not to be taken lightly and ultimately depends on your unique personal and financial situation.
By: Matthew W. Dira
If it is important to you that your insurance ultimately pays a death benefit, then whole life insurance should be considered. Whole life insurance is guaranteed to pay a death benefit regardless of how long you live, as long as premiums are paid. Its counterpart, term insurance, will only pay a death benefit if a death occurs within the term specified in the policy and if premiums have been paid.
The easiest and most efficient way to pay estate taxes is to do so with life insurance. In 2012, we are in a period of estate tax uncertainty. The estate tax exemption in 2012 is $5 Million. This is the exemption for 2012 only, after that congress can make one of two decisions, let the exemption expire or write a new law. What will happen considering this is a presidential election year is anyone’s guess. I hear many attorneys say the $5 Million exemption will be extended. Others say it will go to $3.5 Million. If they do nothing and let it expire, the 1999 exemption will return, $1 Million.
Life Insurance as an Asset Class
Many advisors are using life insurance as an asset class. Whole life insurance has many of the same characteristics of a fixed income product with a guaranteed return. It will also pay a death benefit at a time when very liquid cash would be extremely desirable. On addition to this, it offers tax free growth and tax free withdrawals (if structured and maintained properly). When compared over a lifetime, the returns of whole life insurance look very favorable to that of a fixed income vehicle.
Tax Free Bucket of Money
As mentioned above, whole life insurance offers a tax advantaged way to save money. It also offers flexibility not to be found in other financial tools in the market place. There are not any rules that put limits on how much money can be allocated, unlike a qualified plan ($17,000 for 401(K)’s, $5,000 for IRA’s). There aren’t any rules as to when you can gain access to your money without penalties (age 59 ½ for qualified plans). There are no rules that require you to begin taking distributions regardless if you want them or not (age 70 for qualified plans).
Charitable Giving or Legacy
When a person is philanthropic or perhaps is inclined to leave a legacy, whole life insurance provides a straight forward and easy way to do so. By simply naming a beneficiary, the death benefit will be delivered to the charity of your choice or create the legacy you desire.
Please visit http://www.wholelifeinsurance.com to discuss if whole life insurance is appropriate for you.
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