For this reason, please do not enter into a cash value insurance plan without doing a lot of homework. That said, it can take 10 to 20 years for the needle to begin moving your way. Even with these charges, tax-sheltered savings can still catch up to taxed investments and begin delivering a real advantage.
There are usually significant up-front charges associated with setting up the savings plan, investing the money, and paying the agent's commission. The most important thing to understand about cash value policies is that they are designed to be held for life.
These products combine term life insurance with a long-term, tax-sheltered savings plan. At this point, term insurance is easily dropped, without penalty.Ĭash value basics The second class of life insurance encompasses a wide variety of financial products that are often lumped together under the label "cash value insurance." Examples include whole life, universal life, and variable life. Your premium payments are applied 100% to the cost of the insurance.Īs retirement approaches, your need for life insurance is likely to decline, as children become able to support themselves (even if your own little "rebel without a clue" may not yet be willing) and retirement savings begin to approximate a lump-sum life insurance payment. Term insurance basics Term life insurance is just that - life insurance, and nothing more. For the most part, they fall under two categories: "term" insurance and "cash value" insurance. After basic food and housing is covered, life insurance premiums are likely to be next in line in terms of priority, perhaps even ahead of auto loan and credit card payments.Īs you shop around, you'll be offered an array of insurance options. On the other end of the spectrum, if you are the sole breadwinner for a large family with little savings, you are likely to need substantial life insurance. With a little planning, you can establish a low-risk savings fund to cover funeral costs, then invest the money you would have paid in insurance premiums. If you are single, or one half of a two-income, no-dependents household, you probably won't need much life insurance, if any.
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