The primary difference between Whole and Universal Life insurance is in the investment component - on a Whole Life policy, it is built in the premium, while on a Universal Life insurance it is separate. In addition, Universal Life policies offer a wider variety of investment possibilities. However, the most important aspect when buying a life insurance policy is that it must fulfil your needs. Let's suppose your needs are met and you can pay for a permanent policy. Now you need to ask - is it a sound investment?
Opinions on this subject vary, in part because life insurance as an investment is a very misunderstood topic. Now we will present the crucial pluses and minuses of using life insurance as an investment:
* Profits within the policy and the MTAR limits grow on a tax sheltered basis. In case of Whole Life insurance, the premium shouldn't exceed the MTAR limit, Universal Life policies set a maximum premium according to the MTAR limit.
* The investment portion on an increasing death benefit Universal Life insurance and the dividends on a Whole Life policy are added to the face amount and are paid out on top of the policy face amount tax free.
* You can use the investment component on a permanent insurance to pay for future premiums, allowing you to pay future premiums with pre-tax money, rather than after-tax money.
* The minimum investment rate guarantees are set to more than 4% in case of numerous Universal Life insurance products. This is a great plus for investors who don't like to risk, particularly in today's low interest rate environment.
* For numerous permanent policies, there are strict penalties, if you decide to cancel your insurance within the first few years.
* Generally, it is not a good idea to select a permanent policy, if you don't need a permanent life insurance, as the mortality charge for the life insurance would be higher.
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