Investing In Life Insurance

Education Fund. The cost of higher education in the United States and in other countries has increased dramatically over the last few years, particularly at private colleges and universities, but also at the high school level. These high costs can result in a tremendous financial drain for a family with college-age children, and, as a predictable drain, it can be prepared for in advance.
An educational investment fund, a relatively long-term objective, is set up with the hope that the fund will not be needed in the meantime. Therefore wider investment latitude is justified than in the case of the emergency fund, with the result that a more attractive investment yield often can be obtained.
Life insurance can be used as a vehicle for funding educational needs, at least in part. The cash value buildup in any cash value insurance policy can be tapped at the time of the need. In addition, a life insurance policy can ensure that the educational fund is completed even if the breadwinner of the family dies prematurely. Finally, some life insurance companies sell specific educational insurance policies, the purpose of which is to provide an amount of money at the time the child reaches college age.
General Investment Fund. Many persons desire to accumulate capital for general investment purposes. They want to obtain a better future standard of living, a second income in addition to the earnings from their employment or profession, greater financial security or a sense of personal self-reliance, the ability to retire early or to “take it easy” in their work in the future, or a capital fund to pass on to their children or grandchildren; or they may simply enjoy the investment process. In any event, individuals normally invest money with the view of maximizing their after-tax rates of return, consistent with their risk tolerances, and the investment constraints under which they must operate.
A wide variety of investment instruments exists for the purpose of accumulating capital. Generally, these instruments are classified as either fixed or variable investments. Fixed-dollar investments are those whose principal and/or.
Insurance cash values. The entrepreneur will usually rely on his or her business to provide retirement funds, either through the sale of the business or by continuing to receive income from the business.
Because most families pay taxes of various sorts, the desire to minimize taxes is an understandable, logical, and laudable element of personal financial planning. Thus the tax implications of most financial transactions should be considered.
United States citizens are subject to a variety of taxes. These include sales taxes, property taxes, Social Security taxes, federal income taxes, state and local income taxes, federal estate taxes, state inheritance or estate taxes, and federal gift taxes. The relative importance of these taxes varies considerably among individuals, depending upon their circumstances and income levels. When engaging in tax planning, however, most persons are concerned primarily with income taxes, death taxes, and perhaps gift taxes.
That anyone would purchase life insurance or annuities solely to gain tax advantages is doubtful. Nonetheless, certain tax advantages, justified as sound social policy, accrue to these products. These tax advantages can make life insurance and annuities attractive for certain purposes within a broad personal financial plan.12 briefly stated, the tax advantages in the United States are:
1. Exemption, in general, from income taxation of life insurance death proceeds, even though the proceeds received may greatly exceed the premiums paid for the insurance.
2. Exemption (in whole or in part) from state inheritance taxation of life insurance death proceeds payable to certain named beneficiaries.
3. Tax deferral on the interest credited to qualified life insurance and annuity cash values.
4. Imposition of a moderate federal income tax on annuity income payments involving a favorable rule taxing the interest earnings of the principal sum being liquidated.