14) ""Life insurance involves protection as well as investment"". Do you agree with this statement? Give reason in support of your answer.
Answers
Answer:
Primarily, life insurance is designed to replace income for dependents for a time period that those dependents are unable to adequately provide for themselves. If one is responsible for the livelihood of no one who cannot provide for themselves, one doesn't need life insurance; unless...
One wishes to leave an inheritance and has not adequately planned for it.
One has a permanent policy in place, and it may be more advantageous to exercise options other than surrendering or lapsing it.
One has maximized contributions to one's tax qualified retirement plans and needs another vehicle for tax deferral.
One is planning for estate taxes.
One is in need of a creditor-protected asset vehicle.
One has assets that one would like to pass on tax-free and bypassing probate.
Any one of the many other scenarios where life insurance can do what no other vehicle can.
Also, term is not appropriate if one's life insurance need exceeds 20 years. With a reasonably performing participating whole life policy, one can insure himself for his entire life for less than the total premium outlay of a 30-year term.
I won't get into a discussion of insurance-based investment options. There are far too many angles to discuss; and from what I've read here so far, it's a concept far beyond the comprehension level of this forum. It's obvious that you asked your question as part of an academic assignment. Research proper sources about various forms of insurance, discussing such issues as taxation, internal investments, and dividends. For the rest reading this, find a properly qualified financial planner or advisor who offers life insurance only as part of a comprehensive financial plan.
Answer:
The US tax code instituted rules designed to provide incentive for insuring the lives of heads of households. Those rules, when applied correctly, can also offer tremendous advantages in the area of investment. Don't let anyone tell you that this is an inappropriate use for life insurance. There's a myriad of reasons that the smartest, wealthiest people on the planet do it.
Of course, this issue is really limited to the topic of permanent insurance. There are actually two facets to this question: Is there a legitimate purpose for permanent life insurance; and how do such products properly fit into an investment strategy?
Primarily, life insurance is designed to replace income for dependents for a time period that those dependents are unable to adequately provide for themselves. If one is responsible for the livelihood of no one who cannot provide for themselves, one doesn't need life insurance; unless...
One wishes to leave an inheritance and has not adequately planned for it.
One has a permanent policy in place, and it may be more advantageous to exercise options other than surrendering or lapsing it.
One has maximized contributions to one's tax qualified retirement plans and needs another vehicle for tax deferral.
One is planning for estate taxes.
One is in need of a creditor-protected asset vehicle.
One has assets that one would like to pass on tax-free and bypassing probate.
Any one of the many other scenarios where life insurance can do what no other vehicle can.
Also, term is not appropriate if one's life insurance need exceeds 20 years. With a reasonably performing participating whole life policy, one can insure himself for his entire life for less than the total premium outlay of a 30-year term.
I won't get into a discussion of insurance-based investment options. There are far too many angles to discuss; and from what I've read here so far, it's a concept far beyond the comprehension level of this forum. It's obvious that you asked your question as part of an academic assignment. Research proper sources about various forms of insurance, discussing such issues as taxation, internal investments, and dividends. For the rest reading this, find a properly qualified financial planner or advisor who offers life insurance only as part of a comprehensive financial plan. That doesn't include most insurance agents; and it definitely doesn't include Suze Orman or Dave Ramsey, two of the biggest dealers of misinformation in the financial world.
Explanation: