LIFE INSURANCE
Life insurance is an excellent way to pass money off to your beneficiaries tax-free. A life insurance plan can be used to cover a mortgage, funeral expenses, your child’s education, income replacement, estate conservation, investment credit facility...
There are two main types of Life Insurance Plans. They include Term Life Insurance and Permanent Life Insurance.
TERM INSURANCE
Term Life Insurance is a life insurance plan that lasts for a certain term and then renews at a higher price. Most companies include 10 or 20 year term plans. This means that the premium will stay level for either 10 or 20 years dependant on the plan and then the premium will increase. The premiums generally increase 3.5 times their original price on the 10 year terms and 11 times their original price on the 20 year terms. The plans generally expire at the age of 80 or 85 with some companies. Term plans are generally better for a shorter term need and permanent plans for a long term need.
PERMANENT INSURANCE
Permanent Life Insurance Plans can generally be classified into two types. These Include Universal Life and Whole Life or Term 100.Universal Life, being the more popular of the two. The price of a Universal Life Plan and a Whole Life plan are generally the same, however, within a Universal Life Plan there is much more flexibility. You can choose to pay more than the cost of insurance and allow money to accumulate within your plan tax free above the death benefit. This money accumulates within different investment options and will add on to the death benefit tax free upon death. It can also be withdrawn. However, if the cash accumulated value is withdrawn before death the growth will be taxed at your marginal tax rate.
IMPORTANT TIP!
Always try to designate a beneficiary for your Life Insurance Plan and if anything were to happen to your beneficiary designate a Contingent Beneficiary. If this is not done the money will automatically go to the Estate and will be taxed.