Term insurance is coverage provided for by a pre-specified time period. This means for instance, its purpose is to protect a mortgage or to provide your family with a suitable income in the possible occurrence of your death. The term insurance is paid for each month. As long as the premium is paid, the policy you have will is securely in force. However, upon the contract reaching its maturity, the policy you have will need to be renewed for a higher price. This enables a large sum of money to be received by your estate if your death were to take place.
This is unlike permanent life insurance which is constant until your death. (Also known as whole life insurance) With permanent life insurance, you arrange for a ten to twenty year monthly premium payment. While the monthly payment pays the insurance, the life insurance company that provides the insurance invests the remainder. After a certain amount of time, no more premiums are paid yet your estate will still get the large sum upon your death.
Due to their low investment returns, whole life insurance polices are often criticized. This is way you will usually be advised to buy life insurance protection with a term policy and to invest whatever difference there is between whole life and term payments. These can be done in separate investment vehicles including, stocks, bonds, or mutual funds. However, you will not need insurance after a large pool of assets is built up. This assets are providers of security if you were to die unexpectedly.
This is were a new product comes to play. Universal life insurance is much more flexible. Unlike in whole life policies where the savings are controlled by the insurance company, universal life plans are controlled by the policy holders. A variety of investment options for this component are available. This enables you to have the ability to meet specific life insurance needs that apply you.
Universal life policies are rewarding because of the tax advantage growth. When paying premium, a portion of it is actually paying for the insurance and another is being invested and your cost basis (portion not subject to tax) is even higher than you life insurance policy when you withdraw money from your investment.
The amount of all your premiums is the amount at which your cost base is met. This is wonderful cause when your cost base increases, you will have less tax to pay when selling investments in the universal life policy.
The universal life insurance provides for a adequate combination of life insurance as well as investment opportunities. These premiums work much harder than others and choosing a fitting product is important for success with this strategy.