What does limited pay life insurance mean?
One of the concerns a lot of people have when considering taking out a life insurance policy is a worry that failure to pay a premium in the unpredictable future will result in the laps of the policy, in which case all benefits of the policy automatically fall away.
The limited pay life insurance product is an effective way to deal with this concern.
A limited pay whole life insurance policy is what it appears to be. Under such a policy, you are required to pay premiums for a prescribed limited period or until you reach a certain age. Once the period or the age has been reached, you are no longer required to pay premiums.
However, unlike with term insurance, you will still get the benefit of both the death benefit and the cash value component until the time of your death. In essence, the risk due to non-payment of a premium is shortened to a specific period or event
The main takeaways for limited pay life insurance policies
Three main takeaways here.
Firstly, you pay premiums to a specific date or event, after which you no longer have to pay the premiums for the insurance benefits to continue.
Secondly, there is a high cash growth rate early on, which may interest you financially.
Thirdly, the policy remains active until you die, meaning you provide for the beneficiaries long after paying your last premium.
So what is the catch?
It stands to reason that, since you are paying premiums for a limited period, not for your whole life until the day you die, the insurance cost will be more. And indeed, it is.
However, you can reduce the additional expense by electing to lower the amount of your death benefit, which will result in a lower premium.
You could also consider extending the period, reducing the monthly premium.
Important things to know
Typical payment terms are ten years, 20 years, or payment until you reach the age of 65.
Remember that the shorter the period of payment, the higher the premium, but on the other side of the coin, the faster the cash value accrues.
It is vital to shop around for the best rates from companies that offer limited pay life insurance.
Death benefits to your beneficiaries pass to them tax-free.
Some limited pay policies include dividend payouts – speak to your broker.
There are different options for premium payments. These range from monthly to semi-annually to annually, so you can make the right choice for your circumstances and needs.
The growth of the cash component of these policies is tax-deferred, providing you with another excellent tax advantage.
If you decide to consider taking out insurance, do your homework. There is a wealth of information on the internet. Then do yourself a favor and see a broker. They will answer any questions and put together a customized insurance product for you.
