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Funding Retirement with Life Insurance

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A life insurance policy can be used to help accumulate money that is tax deferred. When you want to get your cash out, you can surrender to the basis, which is the sum of your premiums, and then switch to loans to continue the flow of cash that you need for your retirement. These withdrawals would all be considered to be tax-free. When you die, your heirs would eventually get a death benefit. However, while this concept may seem like a good idea, it eventually doesn’t work beneficially because of the costs associated.

The insurance company will want to have a good idea of your health status before they will agree to insure you. A large portion of your premiums will go to cover the costs of underwriting the policy, when means that it will not go into the cash pool. The people who are selling the policy also need to be paid. That money comes from your premiums and will be factored into the costs that are billed against the cash values. To ensure that the company recoups what it has paid for sales, most of the policies impose surrender charges in case you choose to bail out on the policy too early for them to be able to collect the ongoing fees.

On a regular annual basis, there is a risk that you could die, so there is also the cost of the insurance that is charged against the cash amount. The worse that your health is, the more your insurance is going to cost. As you age, the cost per thousand of the amount at risk is going to go up for the insurance company. As you continue aging, the rates are only going to increase. The amount of money that is at risk is the difference between your cash value and the death benefit that you would typically have.

The cash is earning interest and in a variable contract would be able to be invested in what are mutual funds. None of these are free options. When the investments are not fairing well, then the amount at risk increases. This causes changes against the cash to increase. In variable contracts, premium taxes can also be applied, which will reduce the cash pool as well. When you are in one of these situations, you are going to be stuck with the provisions that are in the contract. You cannot tell what the cost of the insurance is going to be at any point in the future. The company may change the per thousand rate subject to certain types of caps. Even when there is no cap, the rate per thousand tends to be higher than the comparable term policies that are available.

When you have considered what you are put in against what you are getting from the projected cash flow, net costs, and other elements, the amount of money that you are getting from this concept is not even reasonable compared to other optional investments.