A 20 pay life policy is a type of life insurance, typically whole or ordinary insurance, where you pay the same premium for 20 years, at which point the policy is fully funded. It’s a great way to buy insurance while you’re working, so you don’t have to keep paying when you’re retired.
The Details of a 20 Pay Life Insurance Policy
You may be wondering, “how does a 20 pay life policy work?” It’s really quite simple. You pay the insurance company a predetermined premium once a year for 20 years. At that point, your policy has grown to the point where it’s fully funded, meaning it’s at full value from that point onward.
If your 20 pay policy is whole life insurance, also known as ordinary life, you’ll be able to take out loans against the policy, giving you a great investment opportunity. You may also opt to surrender the policy, meaning you’d be taking out all of the money and giving up the death benefit.
The death benefit of a 20 pay policy is not taxable unless it is subject to estate taxes. Most estate planners will shelter insurance policies inside trusts to avoid taxation.
A 20 pay life policy can be a great financial vehicle for you if you prefer to pay higher premiums in the prime of your working life in exchange for paying no premiums after 20 years. Talk to your financial advisor to see if this might be a good addition to your investment portfolio.
