Do You Need Life Insurance

It can be very difficult to decide if you need life insurance. Life insurance can be an extremely onerous financial commitment and investment, and it will also last for a considerable period of time, so you should take careful consideration in deciding if it is the best way of achieving the financial and other goals you and your loved ones have

It can be very difficult to decide if you need life insurance. Life insurance can be an extremely onerous financial commitment and investment. It also lasts for a considerable period. Hence, you should consider carefully to decide if it is the best way of achieving the financial and other goals you and your loved ones have.

Life Insurance Policy

Basically, a life insurance policy will cause a sum to be paid to the named beneficiary upon the death of the insured. This sum will generally be paid to the beneficiary, free of income tax. So in which instances is life insurance generally used above its alternatives? Well its primary role is to give death advantage protection in a tax efficient way. For example, if you want to transfer wealth from your estate, you can use life insurance to give it to your beneficiaries.

You should now that it may still be liable to federal estate taxes. It can also be used to ensure the continuation or protection of a business and to provide financial benefits to your partners or employees who may otherwise be at risk financially. It may also be used to support your family or other dependents that rely on your income during life. It can replace this income and support them in your place for a period. It can also be used to supplement retirement income in various instances when other contributions are not possible.

Be Aware

You can access the money in your policy unless it is a Modified Endowment Contract. What’s more, it will be federal income tax free so long as you make the withdrawal by borrowing against the policy and do not exceed what you have paid into the policy. Withdrawals from an MEC are exposed to federal income tax on the gains they have made. There is an extra 10% tax in certain situations.

You should be aware that all withdrawals and loans against a permanent life insurance policy would reduce the policy’s value and the amount of any pay out upon death of the insured. There may also be various fees and penalties linked to accessing the money early. You should be aware of these fees. If they are very onerous, you wish to look for an alternative source of funds. This way, you don’t have to fall prey to these penalties. Also, if your policy is invested on your behalf, the amount available for withdrawal or loans may be less or more than what you have paid in, depending on how your investments perform.