Mutual Life Insurance: FAQs Answered

A Mutual life insurance company is a type of life insurance company in which the insured participate in the investment decisions of their insurance products and therefore have discretionary control of the investment of the cash value of their policies.

What Type of Insurance Is Mutual Life?

Mutual life insurance companies offer the same basic types of insurance as other companies, including term life, whole life, and universal life. However, mutual life insurance companies offer variable life policies, which contain a death benefit component as well as an investment component in which you are able to invest both your premiums and your cash value in a variety of interest-earning investment choices.

Within this type of insurance company, you will also find annuity funds, which are similar to life insurance and offer some of the same tax deferment benefits but are structured differently.

What Taxes Will I Pay?

One of the best reasons for having a life insurance policy is that the contributions you make to the cash value of the policy are tax deferred, meaning you don't pay taxes on the money you spend on the life insurance.  This can reduce your current tax burden. Furthermore, taxes do not need to be paid on the resulting death benefit that is paid to your beneficiaries. Finally, you can take a loan against the cash value of the policy without being penalized with taxes.

How Do I Determine How Much Insurance I Need?

The rule of thumb in determining how much insurance you need is to determine how much it will cost to settle your estate, pay off your debt, cover your funeral expenses, and replace your income if your family relies on it to survive. Simply do the math to determine how much you need. When you choose a universal life or variable life policy, you will have the flexibility to change the amount of your death benefit without having to create a new policy, so it offers additional flexibility to your changing life circumstances.

What If I Decide I Don't Want the Policy?

You can cash out of your life insurance policy at any time before your death. Be aware that you will only be able to cash out for the cash value of the policy, not the face value. The face value is only paid out as a death benefit, minus any unpaid premiums or loans. The cash value is what the policy is worth in terms of your net investment.

If you decide to cash out a life insurance policy, be sure to seek the advice of an accountant or tax attorney, as you may be required to pay income tax on the funds.

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