Let me begin by
emphatically saying that whatever the clients’ objectives are, that is what the
advisor must absolutely adhere to. So it
goes without saying that if the client wants Term Life Insurance that is what
my team and I do. Clearly this brings us
to the point that Term Insurance is undeniably much more inexpensive than Whole
Life. Term Life Insurance comes in
different strands, the most common of which is Yearly Renewable Term. In this format, the cost rises each and every year. This form
over the years has morphed into a number of different years with a Guaranteed premium
such as 10 Year Guaranteed level or 20 year Guaranteed level. While the premium is guaranteed not to rise, it is more expensive than the yearly renewable form.
For my druthers Term
Insurance should be used when there is a clear need for Life Insurance over a
relatively short time period of let’s say five to seven years. Two examples would be to have protection for
a period of a short-term loan or to fund a Buy-Sell business plan that will
last only over a short time frame. After
that it becomes MORE COSTLY THAN WHOLE LIFE.
How is that possible?
To begin with, the premiums
for Whole Life while being higher are for the life of the contract
PERMANENT. They never go up and in fact
can even be reduced. For instance, the
dividends can be used to reduce the premiums.
This option can be changed by the policy owner. In addition, the dividends are also
TAX-FREE. So your Cash Value is NOT reduced by TAXES. Thus a significant savings in and of itself. This is because dividends are
technically a refund of premiums that were judged to be too high by the Life
Insurance mortality tables.
Furthermore, if the policy
owner and insured want, the cash value can be left to accumulate tax-free and
can be used for a variety of reasons. The
cash value can be used, again Tax-Free, to build supplemental Retirement
Income, fund a child’s college education (Life Insurance is not applied when applying
for student Loans), for a vacation, for a specific goal such as Rental
Property. In short, the cash value can
be accessed TAX-FREE for any specified goal, no restrictions. Furthermore, there are no age restrictions or early withdrawal penalties such as with an IRA or even a Roth IRA.
Let me add that to make it
work tax-free, the policy owner withdraws the amount up to what he or she has
invested (The Basis). When you withdraw
any amount ABOVE THE BASIS, it could be TAXABLE. However, if you code such a transaction as a
LOAN, the IRS treats it as a non-taxable event.
Please call or email us
for a side by side comparison. You be be
pleasantly surprised.