When individuals buy life insurance, they know that they have protection if they pass away unexpectedly, but more and more people are skeptical of buying life insurance because they feel like they are throwing their money away if they do not pass away during the covered "term".
While term life insurance has its benefits, individuals who are looking for financial products that will offer protection and financial perks should consider buying permanent life insurance. Permanent life insurance is classified as equity indexed insurance because it is attached to the market and will earn equity over time. In addition to providing you with life protection, a permanent plan can also act as an investment vehicle. Understand the financial perks of buying permanent life insurance, and choose a plan that offers both living and death benefits.
The Financial Perks of Permanent Life Insurance That Everyone Should Know
- Outperforming Other Markets
Permanent life insurance products were introduced to the market in 1995. These equity indexed products are fairly young compared to other financial products that have been around for decades. Although permanent life is considered a new type of investment product, it has been performing well for the last 15 years.
Compared to all of the markets (including the S&P 500 Index, Treasury bonds, and Treasury bills), permanent life insurance has performed very well. Because most interest rates earned on the policies are guaranteed, policyholders can eliminate the risk associated with investing. Statistics show that investments into the S&P 500 averaged a return of 12.1 percent between 1994 and 2004. In comparison, investments into permanent life insurance averaged a return of 14 percent over the same period of time. Also notable is that if the index goes negative, a universal life policy will still have positive growth.
- Universal Life Accumulates Cash Over Time
Another financial perk of a permanent life insurance plan is that the policyholder will earn cash values as they pay their premiums. A portion of the premiums paid will go towards the premiums for life insurance, and the rest of the money paid annually will be deposited into a cash account. The cash account will grow, tax-free, based on how the market is performing. Unlike other investment vehicles, even if the market goes down, a penny will not be lost in the cash account. With permanent life insurance, you can watch your cash account grow while still having peace of mind in knowing you have life insurance coverage.
- Avoid Paying Taxes on Interest Earned
With an indexed universal life insurance plan, you can avoid paying taxes on the money you earn in interest, as long as you do not withdraw the entire amount in your cash account. Policyholders can borrow against the money in their cash account and repay the money they have borrowed without paying interest. Because you are typically in a higher tax bracket when you retire, having this option is a great perk.
- Business Owners Can Also Benefit
When you own a business, you know how important it is to choose your financial investments wisely. You need life insurance to provide for your family and your business partner, but you also need savings you can rely on. Permanent life insurance can act as life insurance and a savings plan, and is a great way to withdraw tax deferred money legally.
If you want to benefit whether the market is on an upward trend or a downward trend, investing in permanent insurance may be the answer. Stop putting off the purchase of life insurance, and choose a plan that offers perks you cannot look past.
This article was composed by Ty Whitworth, a freelance writer with an interest in finance, saving, debt reduction and current events; he writes for learning about life insurance.
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