Wednesday, March 16, 2011

Participating in your life insurance – a good investment?

Life insurance is a vital and necessary part of every financial plan. But there are a whole lot of life insurance types and products out there – so making the decision about what’s right for your personal situation, budget and longer-term financial and retirement goals can be difficult.

In this column, we will focus on one type of insurance that you should consider if your needs and wants match this profile:
  • You have a low to moderate tolerance for risk

  • You want protection for a lifetime with guaranteed premiums, guaranteed cash values and tax-free benefits guaranteed for your beneficiaries

  • You want an investment component included with your insurance coverage providing the potential for tax-deferred growth without the need to manage those investments

  • You want to build tax-advantaged savings that you can draw upon as needed for personal or business needs (although any cash values withdrawn from such a policy may be subject to tax)

You can get all of these benefits and a few more from Participating Life Insurance or also known as PAR Whole Life.., Participating Insurance combines life insurance with an investment component that also pays dividends.

PAR Insurance works like this:
  • Your premiums go into an account with the premiums from all the other policyholders holding a PAR policy with that life insurance company

  • The amount of your premiums and the other coverages in your policy are calculated using long-term assumptions for death claims, investment returns and other factors. Your guaranteed premium, values and death benefit are based on these factors and are guaranteed for the life of your policy

  • The pooled premiums from all policyholders are invested in a balanced portfolio managed by investment professionals

  • When the actual returns on these investments are greater than the assumptions in place for the life of the policy, there is an account surplus that is paid to policy owners in the form of dividends (although policy owner dividends are not guaranteed)

  • Dividends have a cash value that is credited to your policy and owned by you. You can use the dividends to: increase the policy’s cash value on a tax-advantaged basis, to withdraw cash from your policy or borrow against it, to buy additional insurance without the need to prove your insurability, or to lower your out-of-pocket premiums

PAR insurance products are available with many coverage and payment options. Your professional advisor can show you how to tailor your insurance coverage to meet your needs today and tomorrow.

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