Limited pay Life Insurance Companies- What you need to Know

Limited pay whole life insurance is defined as “a life insurance policy that covers the insured’s entire life with premium payments required only for a specified period of years.”

The period can be set at a specific period or based on the insured reaching a particular age. 

Typically, permanent life insurance policies are paid over the insured’s entire lifetime. However, the limited pay life insurance policy allows you to pay the total cost of your premiums within a determined amount of time. 

The amount of time agreed must be elected when you enter the contract. Most often. The duration is between 10 to 30 years. 

This means that you will not be required to pay any more premiums but will be covered for your life even after the final premium has been paid. 

How can you benefit from whole life insurance?

The most obvious benefit is that you end up with a paid-up whole life insurance policy with no burden of ongoing insurance premiums once the payment period has elapsed. The future can be uncertain, so you, in effect, limit the risk of not being able to pay premiums at a much later stage in your life by contributing more significant premiums earlier.

With a standard life insurance policy, associated fees relating to the policy are deducted throughout your lifetime. However, when you elect for a limited pay whole life insurance policy, the fees deducted are limited to a shorter period, thereby increasing your rate of return on your policy. 

Typically a limited pay whole life insurance arrangement results in a higher cash value for your policy, so you get the benefit of using it as your bank, and the cash value multiplies.

In instances where you choose to pay into a limited pay whole life insurance policy for your kids, they can reap the benefits of the policy after you have paid your premiums for the set period. This is a great way to provide for your kids. 

Are there any downsides to the limited pay whole life insurance approach?

The most apparent downside is that limited pay whole life insurance policies are significantly more expensive. This is because you have a much higher premium over a shorter period. 

As usual, it’s important to find the perfect fit for your specific personal circumstances with insurance products. There are many limited pay life insurance companies. However, it is crucial to find the right insurance brokerage that can assess your needs and propose an insurance strategy for you that will allow you to achieve your goals within your circumstances. 

Don’t forget the other benefits of cash value life insurance, which still apply

Because whole life insurance is considered as cash value life insurance, there are definite tax advantages. 

Withdrawals can be made tax free

Provided you don’t withdraw more than your basis, your withdrawals can be made entirely tax-free.

Any policy loans are interest-free

Life insurance loans enable you as the policyholder to take out a loan against your policy’s cash value tax-free, privately, and with no duty to disclose to any credit agency. 

Death benefits are paid out tax-free

Lump-sum beneficiary payments under the policy will be made out without taxing the beneficiary’s hands. This only applies to lump-sum payments, so bear this in mind. If it is not a lump sum payment, only the accrued interest is taxable.