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A few tips about permanent life insurance

One way of looking at the choice between term and permanent life insurance is as a lease and a purchase. When you take out a term policy, you lease the right to death benefits during the term. When the contract ends, you have no further interest. But when you buy a permanent policy, it stays in force during your lifetime and accumulates a cash value from a tax-deferred savings component. So a permanent policy is term insurance plus an investment account and many buy this kind of policy because you can borrow from the cash component or surrender a part of the policy during your lifetime.

Because of the savings or investment component, permanent policies cost more than term policies. The first main issue for you to consider is the scale of the investment element. Over the last ten years, the stock market has outperformed other forms of investment. It's only recently that the DJIA and other indicators have begun to fall. Thus, if all you want is high growth, don't buy policies of this type. Buy term insurance and make your own investment decisions.

Insurance companies are not wealth managers with a mission to maximize your capital. They are conservative investment managers whose only mission is to provide steady growth (if possible) over time. Remember, to maintain the tax efficiencies, the policy should be in force at least fifteen years. Always think long term and, so long as the policy has the required number of years in play, the benefits pass to your beneficiaries tax free.

The different types of permanent insurance policies give you a choice on how your savings are to be invested. It's up to you to investigate the options and to be comfortable with the decisions you make about risk. A further essential element to consider are the options to stop paying the premiums later in the policy's life. Depending on the terms of the policy, you may be able to use the accumulated investment income to pay the premiums, or you may buy an annuity with that element. This will relieve any financial strain in maintaining instalment payments during your retirement.

Finally, look carefully at the conditions you have to meet to withdraw cash from the investment account, or borrow from the account or use it as collateral for a loan. Since there will be both a cash and surrender value, it is important to know how to use this value to pay for your children's education or should an emergency arise. Always have a clear understanding of a policy before you buy. Never buy simply because the premium is a low or affordable cost. Get the best value for your dollars.


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