Single Premium Life Insurance – An Alternative To Retirement Investing
The concept of life insurance is misunderstood by many individuals, and few people realize that there are products designed to accomplish much more than simply paying for burial costs and final expenses. Many older consumers maintain a fairly large balance in their bank accounts, and certificates of deposit are very popular with this age group. While keeping money in a Certificate of Deposit may make sense in certain situations, most individuals would be better off if they used the balance to purchase a single premium life insurance policy.
Although a whole life policy that is paid up with a single premium may not have a strong amount of interest that will be accrued, it is important to realize that all growth is tax deferred. Certificates of deposit credit interest directly to the balance in the bank, and taxes must be paid every single year on the earnings. In addition, the interest rates associated with bank deposits are now at an all time low, and may not even keep up with the rate of inflation.
If a policyholder would like to leave the money to a son, daughter, or other beneficiary, one of the most unique advantages of a life policy is the fact that the balance can be passed without incurring any taxes whatsoever in most cases. All insurance proceeds, for the most part, are not considered taxable income, so a beneficiary can receive much more money without facing tax penalties and fees. For example, a person that inherits $10,000 from a stock or bond mutual fund may only receive $7,500 after taxes. An individual being paid by the insurance company, however, will receive the whole $10,000.
Most individuals assume that bank accounts are much safer than single premium life insurance policies due to FDIC coverage, but few people realize that there is also a guaranty association in every state for life insurance products up to a certain limit, so there truly is not any more risk than maintaining the balance in a bank. In addition, the reserve requirements established by the federal government are quite strict when dealing with insurers. The insurance companies must always be able to prove the immediate ability to pay any claims when they arise.
While it may take a little bit more research into the various advantages and the particulars, most consumers will find that a certificate of deposit may not be the best place to invest their hard earned money.
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