Different Types of Life Insurance

Life Insurance provides peace of mind that your family will be taken care of in the event of your death. It is used for paying off credit card debt, medical bills, mortgages, funeral costs and other expenses.

Insurance

Choose a company with good financial strength and customer service. You also want a company that scores high for its illustrations, which are the projections you see before buying a permanent policy. Visit www.lifeinsuranceupstate.com to learn more.

Term Life Insurance is a cost-effective option that provides coverage for a specific period of time, known as a term. This type of policy has several benefits, including predictable premiums and a clear coverage period that aligns with your financial goals.

If you die during the term of your policy, the insurer will pay a lump sum to your beneficiaries. This cash benefit is not typically taxable and can be used to settle any final expenses, pay off your mortgage, or cover other debts.

You can also add an optional Critical Illness Benefit rider to your Term Life plan. This benefit provides coverage for the first occurrence of one of 34 specified illnesses. Medical documents are required to be submitted to confirm the diagnosis. The CI benefit will accelerate the death benefit by a specified percentage and reduce the future premiums paid proportionally.

The death of a loved one can cause significant financial hardship for families. With the right life insurance coverage in place, you can help your family cope with the unexpected loss and move on with their lives.

Term Life is generally the most affordable type of life insurance coverage and offers a simple, straightforward approach to protect your loved ones. It’s a good choice for people who want to ensure that their loved ones can meet major financial obligations such as paying off a mortgage or covering education costs, or for those who don’t have the budget to afford permanent life insurance coverage.

Many term life policies are convertible, which means you can choose to convert the policy into a permanent whole life policy at a later date without needing to take another medical exam. The deadline to convert varies by policy.

If you choose to convert your term life policy, the total death benefit and savings element (cash value) of your permanent policy will be equal to the total amount paid into the policy for the duration of the original term. However, if you stop making payments, the accumulated cash value will deplete and your coverage could lapse.

Whole Life

Whole life insurance, also known as whole of life assurance or ordinary life insurance, offers permanent coverage and guaranteed death benefits in exchange for level premium payments. It also provides a savings component called cash value, where a portion of the premiums earns a fixed interest rate. Withdrawals or outstanding loan balances reduce the death benefit, but the insurance company is contractually obligated to pay out the remaining death benefits in the event of your death.

Whether whole life insurance is the right fit for you will depend on your unique needs and situation. The best way to understand your options is to work with a financial professional, such as the ones at Guardian. They can help you take into account your family’s current and future financial needs and provide solutions to help achieve your goals.

For example, you may want to use a life insurance policy as a way to leave behind a financial legacy for your loved ones or favorite charities. Or, you might want to fund a trust for a special needs child (but be sure to consult with an attorney and financial professional to ensure your family is protected).

Another potential use of whole life insurance is to cover estate taxes, which can be a significant burden on your loved ones. With the right strategy, your policy’s death benefits can be paid out tax-free to beneficiaries you designate in the policy.

Those who consider whole life insurance typically want coverage that lasts a lifetime and may have specific investment goals in mind. Whole life policies offer a guaranteed death benefit, a stable death benefit and the potential for a growing cash value that accumulates tax-deferred. And, depending on the insurer, some whole life policies also pay out dividends to policyowners, which can be used to help with premiums, borrowed against or saved for a future need.

Because whole life insurance is a long-term commitment, it’s important to make sure you can comfortably afford the premiums. Your financial professional can review your entire financial picture and recommend strategies to help you meet your goals, including whole life insurance. They can also conduct periodic reviews and adjustments to help you stay on track.

Universal Life

Universal Life Insurance (UL) is a form of permanent life insurance that builds cash value. Like whole life, UL policies provide long-term coverage with flexible premium payments, an accumulation of interest-bearing funds and the ability to borrow or cash in accumulated value. Unlike whole life, a UL policy’s premium costs may change with market interest rates or as the policyholder grows older.

The money collected from premiums in excess of the cost of insurance and administrative charges are funneled into a policy’s cash value component, where it earns a rate set by the insurer, sometimes called a minimum interest rate. Over time, the amount of accumulated cash value may be enough to cover premium payments. Alternatively, the owner of a UL policy can choose to withdraw the accumulated value through partial withdrawals or take out a loan against it with tax-deferred interest (subject to surrender charges and loan interest rates).

Withdrawals and loans reduce the death benefit. In some cases, a UL policy may be terminated if the accumulated value is insufficient to pay for the costs of the insurance and administrative fees.

Often, a UL policy can include various riders that offer additional benefits such as an accelerated death benefit. This rider allows the beneficiary to receive a portion of the death benefit while the insured is still living and can be a useful tool for those facing terminal, critical or chronic illness. Other rider options may be available, such as family riders that provide coverage for children and spouses.

One thing to note about a UL policy is that it does not have the same level of flexibility as a whole life insurance policy when it comes to premiums, cash value growth and death benefits. This is mainly due to the fact that the insurance company invests the cash values of a UL policy in a wide range of market-based investment options.

Investing your cash values in market-based investments can increase the potential for growth, but it also increases the risk that your death benefit and cash value will decrease with changing interest rates and market conditions. This is why it’s important to work closely with your financial professional when considering a UL policy.

Variable Life

A variable life insurance policy allows the owner to invest the cash portion of the policy in a variety of sub-accounts that function like stock and bond mutual funds, under the direction of the owner. This feature provides the potential to earn higher returns than other permanent policies, but also increases risk because gains and losses are tied to performance of underlying investments. Wealth management advisors can help clients choose investment options that align with their long-term financial goals and tolerance for risk.

Variable life offers the same advantages as other permanent policies, such as a death benefit that’s often income tax free, the ability to accumulate money on a tax-deferred basis and flexibility in premium remittance and cash value accumulation. However, compared to whole life or term insurance policies, a variable universal life policy typically has higher costs. These costs may include management fees, insurance charges and the cost of underlying investments. Policyholders should be aware of these fees before making a decision.

Some policies also assess a fee for transactions, such as transferring money among investment options or partial withdrawals, increasing the face amount of the policy or requesting additional reports. These fees should be weighed along with the other costs of the policy when determining whether this type of life insurance is right for clients.

Although many insurance companies offer variable life policies, it’s important to research the available policies before selecting one. Some agents or brokers may quote low premiums and projected account growth and charge high fees without disclosing the risk of a “premium call,” poor investment performance or a lapse of the policy.

Unless your client’s needs and objectives align with this type of policy, it is typically better to go with a term, whole or universal life insurance policy. This way, you can be sure your client’s beneficiaries will receive the maximum death benefit possible. This can make all the difference in achieving their goals, including providing for education, maintaining a living expense cushion and leaving a legacy.