Life Insurance
1. TERM LIFE
In exchange for a premium a death benefit is paid.
Comes is various forms, all different by the length of time the coverage is for: annually renewable, 5 year renewable, 10 year renewable, 15 yr. renewable, 20 year renewable. These policies all have a level death benefit with an increasing premium at the end of the term. With decreasing term (rarely sold other than from banks and mortgage lenders) the amount of insurance goes down each year and the premium remains level.
Good for people who need a lot of coverage and have a tight budget (like starting families) or coverage for only a limited period of time (like coverage for a business loan).
2. CASH VALUE LIFE
In exchange for a premium a death benefit is paid and during the living years of the insured a cash value account accumulates for the insured's use during their lifetime if they wish
a. Whole Life —
has a guaranteed premium, guaranteed cash value build up, guaranteed death
benefit. Usually requires (like term insurance) that the premium be paid every
year ( unless the policy is from a mutual insurance company and dividends credited
to the policy are enough to pay the premium).
Good for people who want guarantees, predicable costs and mature people doing estate planning for wealth preservation.
b. Universal life —
all of the policy elements (premium amount, guaranteed cash value and death
benefit) can vary depending on interest rates and the charges deducted from
the policy by the insurance company. Depending on how much the cash value grows
in excess of the guaranteed amount you may be able to stop paying premiums or
lower the amount of premium you pay. The insure retains the right to change
the interest rate the policy earns and the charges for insurance.
Good for people who can take some risk with their insurance outcome, want flexibility in premium payments and plan to keep coverage for as long as they live.
c. Variable life —
the original form is not seen very often now. It had a guaranteed premium and
death benefit in exchange for the annual premium payment. It offered a varying
cash value that involves investment accounts (sub-accounts) the policy owner
can choose from, such as, a stock account, bond account, international account.
The growth of the cash value depends on how well the sub-accounts you choose
perform.
Good for people who can pay a higher premium than universal, don't need flexibility and want a chance to build greater cash values to use for future income purposes and have lifetime coverage.
d.Variable-universal life —
combination of the features of universal life (varying premium, insurance costs,
death benefit, cash values) and variable life (cash value sub-accounts). This
is the ultimate in flexibility for long-term life insurance policies and is
for the person who understands investing and the risks to their insurance plan
if they abuse the flexibility and choose bad investment sub-accounts.
Good for people in their 30's and 40's who can afford a premium that's higher than universal, can handle the variables that will affect their coverage, and are looking for lifetime coverage.
e. Survivorship life —
this insures two people (usually spouses) and pays a death benefit upon the
death of the second insured. The cost is lower than to have two separate policies.
There are whole life (with all the guarantees) and universal life (with all
the flexibility) versions. Often easy to get coverage even if one spouse is
unhealthy.
Good for people who want to do estate planning to assure funds available just after the second spouse dies.
