Protect Savings with Life Insurance

Life insurance ca offer financial protection for your family in case of unexpected events. A whole life insurance can also build cash value that you can use during your lifetime. The premium must be paid to keep the policy in force. Find out how you can protect savings with whole life insurance and lay a strong financial foundation for your family.

The cash value is the sum that builds up in your policy, set by the Insurance Law. Premiums are more than the cost of insuring your life in the beginning, but after the contract matures, cash value grows and is tax-deferred. The policyholder can access the money in the form of withdrawals and loans. Many people choose to protect savings with whole life insurance, because the withdrawals are not taxable as long as the policy is not considered a modified endowment contract (MEC). Nevertheless, you must be careful when using such services, because the reduced cash value can cause the diminishing of the death benefit. This is why you should search for a family life insurance company, meaning companies which specialize in family insurance, or which pay a lot of attention and importance on the family unit. You may not be able to pinpoint a family life insurance company unless they specifically advertise themselves as being so, but by looking though a company’s offers and policies you ca discover what their inclinations are and how they feel in regards to family insurance.

Most people don’t know that cash-value withdrawals are not always tax-free, especially during the 15 years of the policy. If the withdrawal causes a reduction in the contract’s fixed claim, you may be required to pay taxes for some or all the money. If the cash surrender value is reduced, your premium can increase so the death benefit won’t be affected. If your policy is considered a MEC, cash disbursements are taxable and there is a possibility for a 10% early-withdrawal penalty. If the policy is surrendered, only the cash value and not the face amount goes to the policyholder. In case of death, the face amount goes to the beneficiaries.

A whole life insurance policy allows policyholders to borrow money by using the cash-accumulation account as collateral, in case the payments are not made. The loan can be subject to variable rates and interest, depending on the terms specified in the contract. The advantage is that you do not need to qualify financially for the loan, and the amount is based on the value of the policy’s cash-accumulation account. If the policy dissolves while you are alive, the loans are taxable beyond what you paid.

After you discuss life insurance quotes with an agent, make sure you ask about estate taxes, gift tax consequences and possible income. To protect your savings with whole life insurance policies, you must be aware of the tax treatment for dividends and death benefits. Dividends are considered a return of the premium and as long as they do not exceed the premium not taxation is required. Death proceeds are usually not subject to income taxation, although they can be subject to federal estate taxes.