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What exactly is U.S. insurance finance?

In practice, we have encountered many questions from policyholders regarding “premium payment period”, “what is the policy account”, and “what is the rider”. In this article, we will try to explain this issue from a different perspective in order to help policyholders understand the concept of “American insurance” and “American insurance finance”.

What is American insurance?
U.S. life insurance, which involves a cash value, is a financial savings account with a financial insurance company that belongs to an individual. It just happens to have the word “insurance” in its name. Because of the word “insurance”, it is easy to use the past understanding of insurance products (such as car insurance, medical insurance) to apply this type of U.S. insurance.

To make it easier to understand, the U.S. cash value of life insurance is directly understood as a savings account (policy account) at a financial institution (insurance company). This process is very similar to opening a 401k, 403b or IRA account.

When we talk about “buying” a policy, or “managing money” with a policy, we are actually entrusting a professional to open an account with a financial institution and receive various benefits and additional services from that financial institution through regular deposit fees and regular strategic management. services.

“How long is the contribution period?”
As stated above, because these products are a personal savings account and not simply a purchase of a product, there is no question of a payment period.

With a flexible universal life policy account, we can save a little this year and not next year, or save for 10 years, 20 years, or even for life. Theoretically, the policy account can be maintained as long as the minimum payment amount required by the financial insurance institution, for this account type, is reached.

“What’s the deal with the corresponding coverage?”
We open an account at a bank, and maybe the bank gives a big gift when we open the account. To put it another way, if you open a cash value policy account with an insurance company, the insurance company may also give the customer a “death benefit clause”, “critical illness benefit clause”, “chronic illness benefit clause Riders”, etc. (What is a Rider?) as claim benefits on the policy account. These benefits have developed along with the changes in the American socio-political system and the competition in the industry market.

These riders may be free, or they may have additional costs. For example, a $1,000,000 death claim will cost a little more than a $100,000 dollar death claim, and the amount of money that needs to be deposited in this policy account will be a little more.

“Can I deposit unlimited money into it?”
Because of the tax benefits of this type of policy account, the IRS will not allow unlimited money to be deposited in it to avoid taxes. There is an upper limit on the amount of money that can be put into these policy accounts each year, after which they are considered “investments” and lose their tax benefits.

The amount of money that can be deposited is somewhat related to the size of the policy. The higher the claims coverage chosen by the policyholder, the more money can be deposited.

“What’s the deal with insurance management in the US?”
As we can see from the above explanation, a policy account is like a savings account with a benefit rider, and a tax benefit feature, and as such, is something that needs to be taken care of.

The insurance company will invest the money in this policy account in certain ways, and for indexed universal life products, different financial strategies offered by different financial insurance companies allow the policyholder to make their own choices and use the proceeds to support the cost of various benefits or as a supplemental retirement income stream.

Such policy accounts, then, like a 401k or IRA account, become an integral part of personal or family financial management and an important tool for building a tax-free retirement income stream.

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