Life Insurance Proceeds - Managing Your Windfall

Our day to day life is full of uncertainties which may cause risk for our family, especially in case you are the only wage earner of your family. To prevent such risks one can either start saving on regular basis using different schemes like provident funds, recurring deposits or can start term insurance plans. But there are other whole life plans which give you both in a single bundle.

In recent times life insurance companies have offered new incentives like cutting the premium rates of non smokers as well as customers who do not use drugs or drink less.

The life insurance policy you just took out to safeguard your future and ensure that you have peace of mind years down the line could very well become the source of your headache today. The Government of India recently hiked the service tax and your new insurance policy is now bound to become more taxing on you. The hike in service tax from 12.36% to 14% might not look big but it is like the potholes on Indian roads, they start off small and then one day grow big enough to swallow you whole.

• High Growth – A complaint about whole life is that the money you have access to in the plan (cash value) grows too slowly and typically there is no cash value at all in the first three years. A Bank On Yourself policy, however, incorporates a special rider or option that puts the growth money in the policy on legal steroids. This means policyholders have significantly more equity, especially in the early years of the policy, allowing them to use it as a financial management tool from the start.

More often than not the reason people buy life insurance is because they care about what their loved ones will experience if they should die suddenly. This caring can be expressed in different ways. The Hawaiian people, I am told, have such a deep passion for the well being of their families that they will go to extreme limits to protect them. They tend to buy lots of life insurance as a result.

But look at what happens if the market declines. If the policyholder’s current cash value were to fall by 20%, he would have had to fund the policy at $6,500 per year—an additional $1,600 per year, or 32% more. If his current cash value were to fall by 30%, he would have to fund the policy at $7,200 per year—an additional $2,300 per year, or 47% more. And if his current cash value were to fall by 40%, he would have to fund the policy at $8,000 per year—an additional $3,100 per year, or 63% more.