Is permanent life insurance a good investment Essay
Is permanent life insurance a good investment? This question is often asked by many individual seeking to have insurance policy on their lives. Since death is inevitable, people try to buy life insurance as a way of getting prepared for the future. Buying a life insurance is the best choice an individual can have because of all, the insurance is the cheapest and an individual can use the remaining money for other investments. Life insurance has different categories and permanent life insurance is one of the categories. The insurance policy allows an individual holder to accumulate cash value excluding the terms but the policy is associated with expensive management fees. Research has indicated that most financial advisers consider this insurance as a waste of money. Before answering the question at hand let’s look at some of arguments that have been placed in favor of this insurance.
First with the insurance an individual gets tax-differed growth. This means that an individual does not pay any taxes on any interest that is gained, dividends or capital that is gained by the life insurance until one withdraws the proceeds. Although an individual can get this benefits by saving the money in other retirement accounts, maximizing on the contribution on a yearly bases yield more benefit making this insurance a portfolio for some individuals (Joan & Christie, 2015). Secondly, an individual with this insurance can keep their policy up to the age of 100 as long as they continue paying the premiums. The meaning of this is that permanent life insurance does not put restriction on the number of years the insurance covers like the term policy which ends at 65 to 70 years.
The third advantage of this policy is that one can borrow against the cash value and use the money for their children’s schooling or buying a house without paying any tax or penalty. For this to be realized an individual is required to pay 10% early distribution penalty for a person to be able to withdraw the money for other purpose other than their retirement(Joan & Christie, 2015). Going along this line jeopardizes ones retirement as a result of using the saving for other purpose other than retirement.
The fourth advantage that comes with permanent life insurance is that it provides accelerated benefits when a policy holder becomes critically or terminally ill. This means that a person using this insurance is entitled to a specific percentage of the policy’ death benefit before they die when they develop terminal or critical illness like a heart attack or cancer. Here an individual is able to pay for their medical bills using this insurance but the beneficiaries will not get the full amount after one dies because apart of the money will be spent on treating the illness.
Having examined the arguments that surround permanent insurance then it is clear that using permanent insurance is a good investment especially for those individual who are seeking for ways to minimize estate taxes. According to Joan & Christie (2015), the insurance is also good for the average person because they would be able to make more investments at the same time feel secure of their life insurance.
Since the benefits listed above aren’t unique to permanent insurance, then an individual is at liberty to choose the life insurance they wish to have. This will especially apply to those individuals who do not wish to pay for the high management expenses and the commissions that come with the permanent insurance policy.
Joan S. Ryan & Christie Ryan. (2015). Managing your personal finances. New York. NY: Cengage Learning.