What is the Difference Between a “Paid Up” Life Insurance Policy and a “Matured” Policy?

What is the Difference Between a “Paid Up” Life Insurance Policy and a “Matured” Policy?

A policy that is “paid-up” requires no further premium payments to keep the policy’s full face amount of coverage in force for the remaining term of the contract (generally to age one hundred). This results when premium payments have been sufficiently large to build the reserve necessary to support the policy for the remaining term. However, the reserve, which is closely tied to the cash surrender value of the policy, will always be less than…

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Alternative to Limited Pay Whole Life Insurance

Alternative to Limited Pay Whole Life Insurance

There is no substitute for life insurance of some type if an individual desires to provide an immediate estate upon his or her death. All types of life insurance policies can provide income tax-free cash upon death. The unique features of limited pay life insurance are its predictable total premium outlay and accelerated tax-favored cash buildup. It provides lifetime coverage even though premiums cease at the end of the specified premium-paying period. As a by-product…

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Tax Implications of Limited Pay Whole Life Insurance

Tax Implications of Limited Pay Whole Life Insurance

Non-MEC Policies Limited pay policies that are not classified as Modified Endowment Contracts (MECs) are taxed in the same manner as ordinary level premium whole life insurance. In general, death benefits are subject to the same income, estate, gift, and generation-skipping transfer taxation rules as all other types of life insurance policies.  In summary, life insurance death proceeds are generally paid free of any federal income tax.1 Living benefits are taxed under the rules of…

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Advantages of Limited Pay Whole Life Insurance

Advantages of Limited Pay Whole Life Insurance

In addition to all the advantages attributable to life insurance in general, and whole life insurance in particular, limited pay policies have three distinct advantages: Forecasting the total dollar outlay for limited pay policy coverage is easier than for ordinary level premium whole life insurance. Because premiums on ordinary life continue throughout the insured’s lifetime, a person who enjoys a longer than average life my pay more in total premiums for the ordinary level premium…

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4 Reasons to Consider Limited Pay Whole Life Insurance

4 Reasons to Consider Limited Pay Whole Life Insurance

Prospective insureds may want to consider limited pay policies in any circumstance where they desire whole life coverage and the policy owner has the financial resources to pay the higher premiums necessary for less than the full term of the coverage. Limited pay policies are generally not well suited to persons whose need for coverage is great and whose income is limited. In particular, limited pay policies are often preferred in the following situations: To…

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An Introduction to Limited Pay Whole Life Insurance

An Introduction to Limited Pay Whole Life Insurance

Whole life insurance, as the name implies, is designed to provide protection over the insured’s entire lifetime. Although coverage continues throughout life, insurers offer policies that allow the owner to pay for the coverage over virtually any duration. At one extreme is the ordinary level premium whole life policy where the owner pays level premiums each year for as long as the insured lives (or generally to a maximum age of one hundred). At the…

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