Is permanent life insurance really an ‘investment?’

Question: Kelly in Batavia: Just wondering what your thoughts are on permanent life insurance as an investment. I’m 60, about to retire, and my term policy is about to lapse.

A: Generally speaking, we do not recommend life insurance as an ‘investment.’ For one thing, it’s expensive. Compared to a term policy (in which you’re covered for a set duration of time), a permanent policy can cost upwards of ten times more on an annual basis. For example, a 2022 NerdWallet analysis found that while a 20-year term policy (with a $500,000 death benefit) for a healthy 50-year-old woman would cost $654 a year, a whole life policy for the same death benefit would cost that same person $8,347 a year.

And yes, proponents of permanent life insurance will tout its ‘forced savings’ advantage or its tax-deferred growth benefits. But remember, retirement accounts like a 401(k) offer these very same benefits – but with more investment options for a wider range of risk tolerances.

In all honesty, for most people close to retirement (or in retirement), life insurance – in any form – is typically no longer needed. Why? Because life insurance, in its truest form, is meant to protect against the risk that there will no longer be a stream of income to pay the bills if you’re not around. So, look at your current situation: Is anyone else, such as a child, still dependent upon your income? If there is, then consider another term policy. But if there isn’t, take the next step and assess the state of your finances. Because if you’ve saved well, have no (or little) debt, and your retirement income will come mostly from retirement accounts, then you likely can forego a life insurance policy. But of course, there are always exceptions

Read the rest Continue Reading

Can you cash out your life insurance policy?

You can take cash out of your life insurance policy, but consider the pros and cons of doing so first.  / Credit: Getty Images/iStockphoto

You can take cash out of your life insurance policy, but consider the pros and cons of doing so first. / Credit: Getty Images/iStockphoto

Americans face some challenging economic conditions in 2022, led by record inflation. The average household will pay an extra $5,200 this year on groceries, gas, heating, air conditioning, and other necessities, according to Bloomberg. additionally, a Pew Research Center survey found that 70% of Americans say inflation is a “very big problem” for the country.

Feeling the added pressure of inflation on their finances, some Americans may be looking for economic assistance and exploring their options, including tapping into their life insurance policies for cash. Understanding the advantages and disadvantages of this strategy can help you determine if getting cash out of your life insurance policy makes sense for you.

If you don’t have life insurance, or want to increase the amount you currently have, you can start by getting a quote right now.

Can I take out cash from my life insurance?

Depending on the type of insurance you carry and your circumstances, there are several ways to access cash from your life insurance.

Access a permanent life insurance policy

If you have a permanent life insurance policy, you may be able to dip into your policy’s cash value account. Whole life, universal life and variable universal life are permanent life insurance policies” class=”link “types of permanent life insurance policies that never expire and maintain cash value in addition to a death benefit.

By contrast, term life insurance is in effect for a limited term, such as 10, 20 or 30 years. The policy has a death benefit which pays beneficiaries if the policyholder passes away during the term. But one of the most significant differences between whole and term life

Read the rest Continue Reading

Have a Lot of Debt? You May Want to Make This Important Life Insurance Move

Two parents and two kids sit on the floor of their house playing happily

Image source: Getty Images

Buying life insurance is a great way to protect the people that are most important to you. Those people might be your spouse, your children, or other loved ones who are a big part of your life.

But sometimes, the amount of life insurance you start out with doesn’t end up being the amount you end up needing. In fact, it’s common to need more coverage over time. And that especially holds true if you end up racking up a lot of debt.

Why debt could spur the need for more insurance

The word “debt” tends to have negative connotations, but the reality is that not all debt is bad. Let’s say you recently bought a home that required you to take out a $400,000 mortgage. That’s not a financially unsound move, because that mortgage could help you own an asset that can gain value while putting a roof over your family’s head.

But still, it’s hard to argue the fact that a $400,000 loan is a large sum of money to owe. And so if you end up with a lot of debt, whether in the form of credit card balances, car loans, or a home loan, it’s a good idea to assess your life insurance policy and see if it pays to increase your coverage.

Generally, if you’re married, your spouse will be responsible for paying off joint debts in the event of your passing. And even if you don’t have joint debts, your creditors may be able to come after your estate to get repaid on the debts they’re owed in your name only, thereby leaving your loved ones with less. But if you up your insurance coverage after adding to your debt load, you might spare your beneficiaries that

Read the rest Continue Reading

Should I Take Out Life Insurance on My 47-Year-Old Mom?

Dear Penny,

My mother is 47 and has been increasing paranoid about her death. She’s not sickly or in bad shape. She’s been getting better about managing her sudden diagnosis of diabetes.

I think she’s doing well for her age. She works a full-time job and has little to no complaints. Personally, I think she’s just paranoid, but she’s been asking me serious questions about life insurance policies for herself. She wants me to buy a policy on her, but I’m not keen on purchasing a life insurance policy on my living mother whose death I’m not looking forward to.

Nonetheless, she continues to ask me questions about her finances and what I (her 28-year-old daughter) think she should do about her bad credit, old debt from decades ago, and a past repossession. She asks me if her policies will go to that debt? Will her 401(k) go toward those debts? Or will it be safe for my sister and me?

From what I know, she has purchased two life insurance policies and has listed me as her 401(k) beneficiary. I don’t know what I would do if she passed away suddenly, as I have a very small family that consists of just my sister and mother. (Her ex-husband/my father is estranged). I thought her accounts, 401(k), life insurance policies and debts would go into probate after she dies.

She has many years ahead of her. I feel as though she is worried about debt collectors going after money she intends to leave my sister and me when she passes. What could she do to avoid that? What is good advice for her at someone her age? I want her to live a good life now with her grandchildren and not be so worried about the future when she’s gone.

Read the rest Continue Reading