John R. Bullis: How to find the right life insurance
Life insurance can be great to provide benefits to the family, charities or others. The death benefit is generally tax free!
It is best to work with an experienced independent agent, in person. Buying a policy over the internet may result in buying a policy that does not provide all the flexibility and benefits that would be best for you. An experienced agent will not suggest a particular company or specific product that may not serve your best interests.
For young folks, buying convertible term life insurance means the premiums are lower and the ability to convert to whole life insurance can be valuable. If the health is very good now, the premiums you pay will be small. Later, the policy can be converted to a permanent policy when your health has deteriorated. That gives special lower cost premiums after conversion than if you bought a policy later when your health is bad.
Since the premiums are based on your age and health status, the return on premiums paid usually is in the 5 percent to 10 percent range.
Some of the flexibility benefits include possible tax free conversion from the existing policy to a different policy. Also, loans from the accumulated cash value are usually not taxable. There is no current income tax on the growth of the policy values. That growth may end up being tax free since the receipt of life insurance benefits has favorable tax rules.
If the payments of premiums become a financial burden, you might use the policy values to “pay up” the policy. That results in a lower death benefit, but no more or lower premiums to pay.
If you surrender (close or sell) the policy, the cash value received is only partly taxable. The amount received is reduced by the premiums paid to determine what amount is taxable income. If the policy is an old one (you bought it years ago), the sales price may be more than the accumulated cash value.
There are many reasons to buy life insurance. Usually the main reason is to provide for income replacement for the family. It can also be a way to provide benefits to your favorite charity or church.
Life insurance can help transfer significant amounts to your family that are not subject to death tax if your total assets are less than $5,490,000.
Did you hear? “People often overestimate what will happen in the next two years and underestimate what will happen in ten years,” by Bill Gates, founder of Microsoft.
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.