What You Should Know
- A limited pay life insurance policy can be paid off all at once or in a certain number of years
- Paying off your policy in one payment can negate the tax advantages of your cash value
- You can shop online to find the best life insurance policy for your needs
When it comes to taking care of your loved ones after you’re gone, nothing can quite compete with a life insurance policy. Life insurance can provide an immense financial cushion to your loved ones and give you a little extra monetary support too.
If you’re shopping for affordable life insurance, a limited pay life policy may be the best fit for you — especially if you are of retirement age.
But how can you find the best life insurance product for you? Well, you can find limited pay life policy life insurance quotes easily online from your smartphone or personal computer whenever the urge strikes you to shop for insurance.
Keep reading to learn more about the limited pay life insurance pros and cons so you can make the best decision for your financial future.
Enter your ZIP code to get free quotes for a limited pay life policy right away.
What is a limited pay life insurance policy?
Most individuals think that they are limited in their options to a basic term vs. whole life insurance policy, but that is not the case.
Now, when you go to buy life insurance, a limited pay life policy seems like a standard whole life insurance policy. However, unlike a straight life policy, you can pay in advance during a set period time for your coverage when you purchase a limited pay life insurance policy.
Like a level term life insurance policy, you only pay for your life insurance product for a certain number of years, but you can choose how long you will be charged for your coverage. Usually, the rates of limited pay whole life policies are paid during a 10 to 20 year period.
Another feature that sets a limited pay life insurance policy apart from the competition is that there is great flexibility when it comes to paying your limited pay life policy life insurance rates. You can choose to pay for your policy:
While having this kind of flexibility is wonderful, you must bear in mind that you cannot use your policy’s cash value growth to cover your rates.
What types of limited pay life insurance policies are there?
When you start shopping for limited pay life insurance online, you'll find that you're spoiled for choice. Within minutes, you'll be able to compare the benefits of such policy types like a:
- Single premium whole life
- Seven-pay whole life
- Ten-pay whole life
These different versions of a limited pay life insurance policy all have their own unique traits so let's take a closer look at each one. This way you can learn how these policies can benefit you and be better informed when you start shopping for a life insurance policy.
Single Premium Whole Life
If you have the financial capacity to do so, you can pay for your life insurance in one payment when you buy a single premium life insurance policy. This policy is intriguing because the death benefit is free from taxes.
On the other hand, this type of policy is viewed as a modified endowment contract. This means that you would lose some of the tax advantages that typically accompany a cash value life insurance policy.
Seven-Pay Whole Life
Now, if you wouldn't like to lose the tax advantages of your cash value, you may be interested in a seven-pay whole life policy. With this option, you can purchase coverage for a permanent death benefit and pay for it in only seven years.
But why does this policy retain the cash value tax advantages?
This is because seven years is the shortest time frame that allows you to potentially overfund the policy without running the risk of your policy being viewed as a modified endowment contract. This type of policy may also interest those who want to pay off their coverage as quickly as possible but can't afford to do so in one payment.
Ten-Pay Whole Life Insurance
As you may be able to guess, you have 10 years to pay off a 10-pay whole life policy. Like the seven-pay whole life, you will be able to fund your policy without fear that it will lose its tax advantages and partake in activities like infinite banking.
What is infinite banking?
Infinite banking refers to the act of using your whole life insurance policy as if it were a bank. If you were to, let's say, start a business and need some money to get it off the ground, you may think of approaching your bank and asking for a loan.
While that's all well and good, you would have to consider how much interest would be on that loan. Sometimes the amount of interest that banks attach to loans makes them almost untenable.
This is where infinite banking comes in. If you have a whole life policy that has accrued quite a bit of cash value, you can take a loan out — from yourself. While you will have to pay the loan back, and there may be a small amount of interest on it, you will have a much longer time to do so and a much lower interest rate to worry about.
Who should buy a limited pay life insurance policy?
If you have just graduated from college and approached a life insurance company, a limited pay life policy most likely wouldn't be the first insurance product they offered you.
Younger people are typically advised to get a term policy if they are trying to obtain a maximum amount of coverage for as little as possible.
Purchasing a traditional whole life policy can also be highly beneficial as younger people tend to have fewer health conditions and so can purchase coverage for a low rate and, later, they can use the cash value in the policy if needed.
Of course, if you are a little older, wiser, and are closer to retirement age, a limited pay life policy could be an excellent choice for you, especially if you would like to receive monthly funds from your policy in the form of dividend payments or from your cash value during your retirement.
Limited Pay Life Insurance: What You Need to Know
With limited pay life insurance, you can purchase a large amount of coverage on your schedule by picking the amount of time you have to pay it off. These types of policies are not advisable for younger people, but those who are about to enter retirement could greatly benefit from a limited pay life insurance policy.
You can choose to pay off your policy in one large payment or take as long as 20 years to do so, and since it is a whole life policy, you can bolster your monthly income by receiving dividend payments or withdrawing your cash value.
If this type of life insurance product sounds like it would be beneficial to you, you can shop online to find the perfect policy. Of course, before you sign on the dotted line, be sure to compare between at least three to five quotes so you can verify that you are making the right choice.
Enter your ZIP code today to get free limited pay life policy quotes from insurance companies near you.