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CHAPTER 11

and you are younger than 591/2, you will be penalized by the IRS. First of all, the money withdrawn will be treated as a gain, not a return of your original premium. Therefore, it will be taxed as income. Sec- ondly, you will face a 10-percent early withdrawal penalty because you aren’t 591/2 years old yet. These are the main reasons the SPWL isn’t suited for younger people and young families. Instead, the SPWL is more appropriate for middle-aged people with higher incomes who may want to supplement their retirement income or cover future, potential estate costs.

Limited-Payment Whole Life Limited-payment policies also cover the insured throughout his or her entire life. But, they are a split between the single-premium and continuous-payment whole life policies. Limited-payment policies are designed to have the insured stop paying the premium after a certain period of time. Common types of policies are 20-pay life, 30-pay life, paid-up at age 55, and paid-up at age 65. This is the way it works: Under the 20-pay and 30-pay life policies, the policyholder pays the same level premium for the 20 or 30 years, depending on the policy type. After that time period elapses, the policy is paid up and the insured owes no more money in the way of premiums. For the paid-up at age 55 and paid-up at age 65 policies, the policy- holder pays the premiums until that person is either 55 or 65. Again, the policy is then fully paid for. Naturally, the older the insured is when he or she takes out the policy, the larger the premiums will be, especially when choosing the paid-up at a specific age policies. Once the policies are paid for, they remain in force for the rest of the insured’s life.

Beware of salespeople who try and sell you a limited-payment policy using the following two arguments: a large savings element, and limited payment time. The aim of life insurance is to provide financially for the beneficiaries of a deceased person. They take care of the financial loss that occurs when someone dies. They aren’t specifically designed for an accumulation of savings. Plus, as we dis- cussed earlier, those people who elect to purchase a straight life pol- icy only need to pay the premiums for as long as they want to. As long as there is a cash value, those straight life policies may be converted

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