Understanding the advantages of level premium whole life helps consumers make the most educated decision. Here are the 11 major advantages that should be considered when considering level premium whole life insurance:
- A fixed and known annual premium. Although, it should be noted that net premiums (fixed premiums minus dividends) for par policies generally will decline over the years.
- Guaranteed ceiling on mortality and expense charges and guaranteed floor on interest credited to cash values.
- Cash value interest or earnings accumulate tax-free or tax-deferred, depending on whether gains are distributed at death or during lifetime.
- Ordinary life, through the combination of guaranteed cash values and dividend formulas, frequently pays higher effective interest on cash values than is available from tax-free municipal bonds.
- Cash values are not subject to the market risk associated with longer-term municipal bonds and other longer-term fixed income investments.
- Policyowners can borrow cash values at a low net cost. Although policyowners must pay interest on policy loans, cash values continue to grow and as the insurance company credits at least the minimum guaranteed rate in the policy. Consequently, the actual net borrowing rate is less than the stated policy loan rate.
- Life insurance proceeds are not part of the probate estate unless the estate is named as the beneficiary of the policy. Therefore, the beneficiary can receive the proceeds without the expense, delay, or uncertainty caused by the administration of the estate.
- There is no public record of the death benefit amount or to whom it is payable.
- In most cases, the death benefit proceeds are not subject to federal income taxes.
- The death benefit proceeds are often fully or partially exempt from state inheritance taxes unless payable to the insured’s estate.
- Policyowners can use life insurance policies as collateral or security for personal loans.
Reproduced with permission. Copyright The National Underwriter Co. Division of ALM