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Monday, July 1, 2013

5 advantages of insurance products in retirement planning

Life insurance products are not limited by rules affecting IRAs and 401(K)s
Life insurance affords retirement planners several important benefits
Insurance companies are specialists in retirement planning; if there were no advantages of owning insurance instruments, the chances of the industry prospering for as long as it has would be lower. When considering the purchase of insurance products, an objective assessment of the financial security, planning options and monetary advantages they offer helps with decision.

Several perks exist when owning one or more insurance related contracts such as long-term care insurance, life insurance and annuity contracts. Moreover, since some of these features are not necessarily available from other financial businesses, this makes the careful use of insurance instruments a significant part of financial planning. Some of the advantages of owning insurance products are as follows:

Tax benefits


When insurance premiums are payed for with after-tax dollars, the cash value that accrues in some financial instrument is still taxable following withdrawal per Americans For Fair Taxation, a not-for-profit organization that advocates fair taxation. However, insurance benefits, which are different from cash value, are not taxable provided that premiums are paid with after-tax dollars.

Creditor protection


An important aspect of insurance products is creditor protection. This means in the event of bankruptcy, garnishment or debt collection, funds within insurance products are safe from liquidation. This is a substantial benefit that offers insured persons financial security not available via other financial instruments such as some types of brokerage accounts, bonds and certificates of deposit.

Guaranteed income


Another useful benefit of insurance products such as annuities is guaranteed income. For instance, a deferred annuity with a fixed income guarantee is contractually obliged to pay the annuity owner a specific amount of income at a pre-determined time and on a periodic basis. This type of financial instrument is sometimes a good option for individuals seeking to supplement income from Social Security.

No required distribution age


Unlike financial instruments such as 401(k)s and Individual Retirement Accounts, some insurance products do not have required minimum distributions or RMDs upon reaching a specific age. For those persons seeking to grow the value of their annuity via continued premium payments, this is a significant advantage.

No maximum contribution


In addition to no required minimum distribution age, insurance instruments such as annuities do not necessarily have limits on how much can be deposited into them each year. For individuals with extra money looking to boost financial security, this can be an attractive financial planning option.

In today's world choosing from a multitude of financial products can be confusing when planning for retirement. Even with all the positive aspects of insurance products, caution is often warranted when making financial decisions. To illustrate, depending on licensure requirements and state laws, insurance agents may or may not have a fiduciary responsibility to pursue their clients' best interest. For this reason, being aware of what insurance products have to offer in relation to their actual cost and financial planning goals is an act of due diligence that prospective insurers would be wise to carryout independently.

  Image license: PD; Виталий Смолыгин

1 comment:

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