When looking to create wealth, very few people consider insurance. However, insurance coverage is among financial products that can generate wealth alongside investment. With insurance, you are guaranteed payment in the future depending on your premium. So if your interest has been piqued and you want to know what insurance class product to settle on, here is a guide to the various policies that will assure you a stream of income in the future for you and your heirs.
Annuities are insurance policies which are designed to shield one from outliving their savings. They are the inverse to life insurance. They comprise two types: immediate and deferred. In a deferred annuity, there is an accumulation period in place before one can receive a payout from the annuity. With an immediate annuity, the payout starts when one pays their premium. Either one helps chop down lump sums of money into continuous streams of payments.
How Annuities Work
With an annuity, one pays the insurer an upfront premium payment. The premium payment is, in turn, joined together with other funds which are later leveraged in investments to come up with a fund that will fund ongoing payments.
With a fixed annuity, you receive a payment that is founded on the premium that you paid alongside an assured interest rate.
With a fixed-indexed annuity, there is a minimum interest rate plus an extra interest rate that opens the doors to gains based on a particular index, and this helps avert losses.
Permanent Life Insurance
In permanent life insurance, the cash value is allowed to accumulate depending on the policy. Two kinds of life insurance can be leveraged into creating personal wealth over a person’s lifetime: universal life policies and whole life policies. In these policies, the cash value accumulates, but the means are different.
In whole life policies, the benefits are long term in that the individual has fixed benefits and a premium schedule that is preset. The universal life policies are more flexible since they allow for one to set their premiums, saving benefits and benefits as needed. For this reason, it is the better option when creating wealth as it is flexible. If need be, one can take up a loan against their cash value or even increase their death benefits and thus more hold on the terms.
You can also take advantage of indexed universal life insurance. In this, you are allowed to make a part of the policy’s cash value and use it in an equity index account.
In conclusion, settling on either annuities or life insurances will depend on whether you want to create the stream of income for your benefit or for your heirs to receive the large amount.