Inglewood Business Magazine May 2019

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Inglewood Business Magazine | Insurance Annuities vs. Life Insurance Which Is Right for Retirement Income? WHAT IS LIFE INSURANCE? There are two types of life insurance: Term and Whole life insurance (or permanent). Term life insurance is only for a period of time – for example 20 years. It works best for people who want insurance until they reach retirement age, or to cover other types of timespecific situations. Whole life insurance provides money to your survivors after your death. With universal whole life, the premium goes toward a death benefit and in a savings or low-risk investment. With variable whole life, more of the premium goes toward riskier investments. Variable universal whole life insurance is a combination of universal and variable. Advantages of Life Insurance Considering a life insurance plan is an important part of your financial planning. Life insurance offers protection for your loved ones, preventing them from having to drastically alter their lifestyle should the unexpected happen. Life insurance provides peace of mind that your family members won’t struggle financially when you are gone. If you’re the breadwinner, this is particularly important. Depending on the policy’s amount, you won’t have to worry about the family’s home being foreclosed on. Additionally, your spouse won’t have to take on an additional job, and your kids won’t have to drop out of college to help pay bills. Funeral costs are also expensive – typically over $7,000. A life insurance policy ensures that your family won’t have the additional burden of wondering how to pay your funeral and burial expenses. Term life insurance is relatively inexpensive. For example, to get a 20-year term life insurance policy with $250,000 of coverage, your payments would start at approximately $15 a month. You can also renew the policy when the premium period is over. In addition, you can also convert your term life policy to a whole life policy. You can borrow the cash value of a whole life insurance policy (which is a tax-free loan) or you can surrender the policy for cash. Also, your insurance agent might not tell you this, but if your term life policy is eligible to be converted to a new policy, and the death benefit is at least $100,000, you can sell it to an outside investor and receive a cash payment. Money in your life insurance policy, whether the money is saved or invested, is tax-deferred until you withdraw it. Disadvantages of Life Insurance The disadvantages of life insurance occur when the decision to buy a policy isn’t considered carefully. For example, buying a life insurance policy when you don’t need one or buying a complex policy. There is a chance your policy can lapse. If this happens, the company won’t owe you or your family a dime. According to the Life Insurance 20 Inglewood Business Magazine May - June 2019
Insurance | Inglewood Business Magazine Settlement Association (LISA), among consumers over the age of 65, over 250,000 life insurance policies lapse each year. The average value of those policies is $225,000. As a result, insurance companies gain over $57 billion a year due to lapses. Whole life insurance is much more expensive than term life insurance – it can be six or seven times more expensive. The payments are so expensive that many people can’t keep up with the payments. You’re less likely to benefit from term insurance because you might not pass away during the coverage period. After the term of a term life insurance policy has expired, you can renew it each year, but the premiums will begin to increase significantly. You cannot borrow any money from your term life plan. If you borrow from your whole life policy, you will have to pay the money back with interest (even though it’s your money). Life insurance also includes a variety of fees (administrative, management, and commissions) that you have to pay. Buying a life insurance policy when you don’t have a need for one puts you at a disadvantage. For example, if you’re 75 years old with no dependents or earning power, you don’t need a life insurance policy.\ WHAT ARE ANNUITIES? Annuities are another type of financial product sold by insurance companies. Money that you put into an annuity is then used to provide you with monthly (or annual) payments. However, this is not a bank, where you deposit money and have a balance that must be maintained. An annuity is designed to provide you with additional money, but it’s a gamble. Immediate Annuities are obtained by making a lump sum and you start receiving payments immediately. For example, if during your late 60’s, you took $110,000 and bought an immediate annuity, you could receive roughly $7,000 a year every year for the rest of your life. Deferred Annuities are paid out at a time in the future, for example, when you retire. continued on page 26... 2300 W. Manchester Blvd. Inglewood, California 90305 Phone: (323) 750-0739 | www.bcagencying.com www.inglewoodbusinessmag.com Inglewood Business Magazine May - June 2019 21
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